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Maximum likelihood estimation and Lagrange multiplier tests for panel seemingly unrelated regressions with spatial lag and spatial errors: An application to hedonic housing prices in Paris

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  • Baltagi, Badi H.
  • Bresson, Georges

Abstract

This paper proposes maximum likelihood estimators for panel seemingly unrelated regressions with both spatial lag and spatial error components. We study the general case where spatial effects are incorporated via spatial errors terms and via a spatial lag dependent variable and where the heterogeneity in the panel is incorporated via an error component specification. We generalize the approach of Wang and Kockelman (2007) and propose joint and conditional Lagrange multiplier tests for spatial autocorrelation and random effects for this spatial SUR panel model. The small sample performance of the proposed estimators and tests are examined using Monte Carlo experiments. An empirical application to hedonic housing prices in Paris illustrate these methods. The proposed specification uses a system of three SUR equations corresponding to three types of flats within 80 districts of Paris over the period 1990-2003. We test for spatial effects and heterogeneity and find reasonable estimates of the shadow prices for housing characteristics.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 69 (2011)
Issue (Month): 1 (January)
Pages: 24-42

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Handle: RePEc:eee:juecon:v:69:y:2011:i:1:p:24-42

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Web page: http://www.elsevier.com/locate/inca/622905

Related research

Keywords: Hedonic housing prices Lagrange multiplier tests Maximum likelihood Panel spatial dependence Spatial lag Spatial error SUR;

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References

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  1. Xiaokun Wang & Kara Kockelman, 2007. "Specification and estimation of a spatially and temporally autocorrelated seemingly unrelated regression model: application to crash rates in China," Transportation, Springer, Springer, vol. 34(3), pages 281-300, May.
  2. Baltagi, Badi H. & Heun Song, Seuck & Cheol Jung, Byoung & Koh, Won, 2007. "Testing for serial correlation, spatial autocorrelation and random effects using panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 140(1), pages 5-51, September.
  3. Magnus, Jan R., 1982. "Multivariate error components analysis of linear and nonlinear regression models by maximum likelihood," Journal of Econometrics, Elsevier, Elsevier, vol. 19(2-3), pages 239-285, August.
  4. Kapoor, Mudit & Kelejian, Harry H. & Prucha, Ingmar R., 2007. "Panel data models with spatially correlated error components," Journal of Econometrics, Elsevier, Elsevier, vol. 140(1), pages 97-130, September.
  5. Arguea, Nestor M. & Hsiao, Cheng, 1993. "Econometric issues of estimating hedonic price functions : With an application to the U.S. market for automobiles," Journal of Econometrics, Elsevier, Elsevier, vol. 56(1-2), pages 243-267, March.
  6. H. Kelejian, Harry & Prucha, Ingmar R., 2001. "On the asymptotic distribution of the Moran I test statistic with applications," Journal of Econometrics, Elsevier, Elsevier, vol. 104(2), pages 219-257, September.
  7. Breusch, T S & Pagan, A R, 1980. "The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 47(1), pages 239-53, January.
  8. Gabrielle Fack & Julien Grenet, 2010. "When do Better Schools Raise Housing Prices? Evidence from Paris Public and Private Schools," CEE Discussion Papers, Centre for the Economics of Education, LSE 0119, Centre for the Economics of Education, LSE.
  9. Can, Ayse, 1992. "Specification and estimation of hedonic housing price models," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 22(3), pages 453-474, September.
  10. Glaeser, Edward L., 2008. "Cities, Agglomeration, and Spatial Equilibrium," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199290444, October.
  11. Ingrid Nappi-Choulet Pr. & Tristan-Pierre Maury, 2009. "A Spatiotemporal Autoregressive Price Index for the Paris Office Property Market," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 37(2), pages 305-340.
  12. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  13. Baltagi, Badi H, 1980. "On Seemingly Unrelated Regressions with Error Components," Econometrica, Econometric Society, Econometric Society, vol. 48(6), pages 1547-51, September.
  14. Dubin, Robin A., 1992. "Spatial autocorrelation and neighborhood quality," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 22(3), pages 433-452, September.
  15. Halvorsen, Robert & Pollakowski, Henry O., 1981. "Choice of functional form for hedonic price equations," Journal of Urban Economics, Elsevier, Elsevier, vol. 10(1), pages 37-49, July.
  16. Avery, Robert B, 1977. "Error Components and Seemingly Unrelated Regressions," Econometrica, Econometric Society, Econometric Society, vol. 45(1), pages 199-209, January.
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Cited by:
  1. Bresson G. & Hsiao C., 2008. "A Functional Connectivity Approach for Modeling Cross-Sectional Dependence with an Application to the Estimation of Hedonic Housing Prices in Paris," Working Papers ERMES, ERMES, University Paris 2 0810, ERMES, University Paris 2.
  2. Hernán Enríquez Sierra & Carlos Barreto Nieto & Carolina Correa Caro & Jacobo Campo Robledo, 2012. "PRECIO DEL SUELO Y REGALÍAS EN COLOMBIA: Un análisis espacial para los municipios productores de petróleo," DOCUMENTOS DE TRABAJO 010252, UNIVERSIDAD CATOLICA DE COLOMBIA.
  3. Gauvin, Laetitia & Vignes, Annick & Nadal, Jean-Pierre, 2013. "Modeling urban housing market dynamics: Can the socio-spatial segregation preserve some social diversity?," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(7), pages 1300-1321.
  4. repec:wyi:journl:002130 is not listed on IDEAS
  5. Badi H. Baltagi & Georges Bresson & Jean-Michae Etienne, 2013. "Hedonic Housing Prices in Paris: An Unbalanced Spatial Lag Pseudo-Panel Model with Nested Random Effects," Center for Policy Research Working Papers, Center for Policy Research, Maxwell School, Syracuse University 163, Center for Policy Research, Maxwell School, Syracuse University.

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