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I am unsuccessfully trying to do the Arellano and Bond (1991) estimation using pgmm from the plm package. To see if the problem was in my data, I instead used the data supplied i the plm library, but got the same problem when using the "summary" command:

Error in t(y) %*% x : non-conformable arguments

The coefficients of the model can be obtained though.

My own data has T=3, N=290. As I understand it T=3 is the minimnum, but should be sufficient. When using the Arellano and Bond data, I get the same error when T=4.

data("EmplUK", package = "plm")
library(sqldf)
UK<-sqldf("select * from EmplUK where year in ('1982','1981',
'1980','1979')")


z1 <- pgmm(log(emp) ~ lag(log(emp), 1) + log(wage) +
log(capital) + log(output) | lag(log(emp), 2),
       data = UK, effect = "twoways", model = "twosteps")
summary(z1)

The way I understand the estimation method and the R-formula, the left hand term is the difference in the dependent variable, and the first right hand term is the lagged difference. And the latter term is instrumented by the level of the dependent variable in (t-2)

I have verified that subset I use is a balanced panel with T=4. When I include more years, everything works out. So it must be the length of the panel that causes troubles.

Any help would be much appreciated.

Helix123
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Björn Backgård
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1 Answers1

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A similar question is asked here. It is suggested that the error has to do with mtest, a serial correlation test performed by the pgmm summary method. Running the function separately seems to confirm this

>mtest(z1, order = 2)
Error in t(y) %*% x : non-conformable arguments

T=3 is enough to estimate the model, but this only only leaves you with an estimate for the last period. A second order mtest requires the residuals to contain at least 3 periods, i.e. T=5 for your model.

Community
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Jonathan
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  • The other person asking had only T=2. And with that you shouldn't really be able to do Arellano Bond estimation. But with T=4 it should work. – Björn Backgård May 15 '15 at 17:34
  • Probably your suggestion is the reason for the problem. I will try some other software instead. – Björn Backgård May 18 '15 at 13:55
  • look at Arellano/Bond (1991), p. 282: "The test statistic for second-order serial correlation based on residuals [m2]...Note that m2 is only defined if min Ti>= 5." – Helix123 Aug 15 '16 at 18:12