The PANEL Procedure

INSTRUMENT Statement

INSTRUMENTS options ;

The INSTRUMENTS statement denotes which variables are used in the moment condition equations of the dynamic panel estimator. The following options can be used with the INSTRUMENTS statement.

CONSTANT: includes an intercept (column of ones) as an uncorrelated exogenous instrument.
DEPVAR: specifies that a dependent variable be used at an appropriate lag as an instrument.
CORRELATED=(variable, variable, ..., variable): specifies a list of variables correlated with the error term. These variables are not used in forming moment conditions from level equations.
EXOGENOUS=(variable, variable, ..., variable): specifies a list of variables that are not correlated with the error term.
PREDETERMINED=(variable, variable, ..., variable): specifies a list of variables whose future realizations can be correlated with the error term but whose present and past realizations are not.

If a variable listed in the EXOGENOUS list is not included in the CORRELATED list, then it is considered to be uncorrelated to the error term. For example, in the following statements, the exogenous instruments are Z1, Z2 and X1. Z1 is an instrument that is correlated to the individual fixed effects.

   proc panel data=a;
      inst exogenous=(Z1 Z2 X1)
        correlated = (Z1) constant depvar;
       model Y = X1 X2 X3 / gmm;
   run;

For a detailed discussion of the model set up and the use of the INSTRUMENTS statement, see Dynamic Panel Estimator.

Note that for each MODEL statement, one INSTRUMENT statement is required. In other words, if there are two models to be estimated by using GMM within one PANEL procedure, then there should be two INSTRUMENT statements. For example,

    proc panel data=test;
      inst depvar pred=(x1 x2) exog=(x3 x4 x5) correlated=(x3 x4 x5);
      model y = y_1 x1 x2 / gmm maxband=6 nolevels ginv=g4 artest=5;
      inst pred=(x2 x4) exog=(x3 x5) correlated=(x3 x4);
      model y = y_1 x2 / gmm maxband=6 nolevels ginv=g4 artest=5;
      id cs ts;
    run;