Dear Sir/Mam,
I'm doing dynamic panel data analysis using Generalized moments of methods(GMM). I have a doubt. In difference GMM method, lagged values of independent variables are considered. So for correlation analysis should i take lagged dep and independence variables for analysis or should I take the original values of variables. Kindly reply. Thank you
In the difference GMM method, lagged values of independent variables are used to control the endogeneity of the independent variables. Therefore, when performing correlation analysis in this context, you should use the lagged values of the independent and dependent variables, rather than the original values. This is because the lagged values of the independent variables are used to instrument for the contemporaneous values, and the lagged values of the dependent variable are used to measure the impact of the independent variables on the dependent variable. Using the original values of the variables in this context would not accurately reflect the relationships being analyzed. Hope this helps you
In difference GMM, you should use the lagged values of the independent variables, but not the lagged dependent variable. The lagged dependent variable should be included in the model as an independent variable.
The reason for this is that the lagged values of the independent variables are used as instruments for the current values of the dependent variable. If you included the lagged dependent variable as an independent variable, it would not be exogenous (uncorrelated with the error term) and could lead to an inconsistent estimator.
For correlation analysis, you can either use the lagged values of the independent variables or the original (non-lagged) values, depending on the focus of your analysis. If you are interested in the relationship between the current values of the dependent and independent variables, you should use the original values. If you are interested in the relationship between the lagged values of the independent variables and the current values of the dependent variable, you should use the lagged values of the independent variables.
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