singular matrix problem in R and Eview.

[Ravindra Nath Shukla]

@Neeraj sir and Mikhlesh sir 

Good evening sir, 

Sir,  I am working on leverage adjustment using the system GMM estimation model. 

My model contains firms' specific variables as well as macroeconomic variables.

Sir, I'm facing a singular matrix problem while performing the system GMM in R and Eviews. 

Macroeconomic variables in my study change over time but not across entities (such as GDP growth, inflation, and interest rate). 

Please look at the attached CSV file and R code, and suggest how to arrange my data to overcome the singular matrix problem. 

I'm running the following code on R : # System GMM > 

system_gmm =pgmm(DR~lag(DR)+Age+Size+AST+GR+NDTS+LQ+ROA+CCF+GDP+INF+INT+SMD+CFIN+UEMP|lag(DR, 2:99), mydata, index= c("Company.Name","FY"), model="twostep", effect ="twoways",collapse = TRUE, transformation = "ld" )

 and it returns the following error : 

Error in solve.default(crossprod(WX, t.CP.WX.A1)) : system is computationally singular: reciprocal condition number = 2.21118e-69 

In addition: Warning message: In pgmm(DR ~ lag(DR) + Age + Size + AST + GR + NDTS + LQ + ROA + : the first-step matrix is singular, a general inverse is used. 

Thanks & Regards

Ravindra Nath Shukla

PhD./Research Scholar 

ABV IIITM Gwalior.

[Ravindra Nath Shukla]

Please guide me how to do my dataset management. 

My dataset contains firm-specific variables of corporate firms (such as leverage, ast, gr, ndts etc)  from one economy with macroeconomic variables (such as GDP, Inf, SMD, rint, FDIG etc.) . 

Since all firms belong to the same economy, their macroeconomic variables tend to be the same for all cross-sectional subjects or firms.

Please have a look at my attached files and suggest to me

1. How to manage all data in the same data file

2. IF we need to use two different datasets containing firm-specific variables and one only macroeconomic variable yearly, then how can we use them in R/eviews/stata to have GMM estimation. 

[Miklesh Yadav]

Dear Ravindra Nath Jee,

Singular matrix problems occurs because of any of following reasons:

1) If your data have missing values .
2) If there is linear dependency.
3) Because of duplicacy   of the cross sectional unit or time period

Regards

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[Ravindra Nath Shukla]

@Miklesh sir

Thank you for your response, sir, 

Sir, you rightly pointed out (point-3 : Because of duplicacy   of the cross sectional unit or time period) 

My dataset contains macroeconomic variables such as GDP, for example, along with firm-specific variables of firms. 

These macroeconomic variables changes with time but do not change with cross-sections. Like GDP for firms A, B, C, and D for year 1 are identical for year 2 is same and so on. 

Please guide me in such a scenario; what is the possible way to use such variables in my study,  as macroeconomics significantly influences corporate financial decisions. 

Thank you

Regards 

Ravindra

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