open cig_ch10.gdt

# real avg price including sales tax
ravgprs = avgprs / cpi

# real avg cig-specific tax
rtax = tax / cpi

# real average total tax
rtaxs = taxs / cpi

# real average sales tax
rtaxso = rtaxs - rtax

# logs of consumption, price, income
lpackpc = log(packpc)
lravgprs = log(ravgprs)
perinc = income / (pop*cpi)
lperinc = log(perinc)

# restrict sample to 1995 observations
smpl --restrict year==1995
# Equation (10.16) by tsls
list xlist = const lravgprs lperinc
list zlist = const rtaxso rtax lperinc
tsls lpackpc xlist ; zlist --robust

# setup for gmm
matrix Z = { zlist }
matrix W = inv(Z'Z)
series e = 0
scalar b0 = 1
scalar b1 = 1
scalar b2 = 1

gmm e = lpackpc - b0 - b1*lravgprs - b2*lperinc
  orthog e ; Z
  weights W
  params b0 b1 b2
end gmm