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A test to select between spatial weighting matrices

Author

Listed:
  • Stephen G. Hall

    (University of Leicester
    Bank of Greece
    University of Pretoria)

  • George S. Tavlas

    (Bank of Greece
    Hoover Institution)

  • Deborah Gefang

    (University of Leicester)

Abstract

There exist a number of ways of selecting the best spatial weighting matrix in a spatial regression framework. But these methods all work under the assumption that there is only one matrix in the final model and they simply aim to pick the best one. We propose an encompassing tests which allows for the possibility that the final preferred model may have two or more spatial weighting matrices. We validate the proposed test through a Monte Carlo study. We then illustrate the test by applying it to a two-equation simultaneous system determining sovereign bond ratings and spreads for two groups comprising northern and Southern Euro-area countries.

Suggested Citation

  • Stephen G. Hall & George S. Tavlas & Deborah Gefang, 2023. "A test to select between spatial weighting matrices," Journal of Spatial Econometrics, Springer, vol. 4(1), pages 1-10, December.
    • Handle: RePEc:spr:jospat:v:4:y:2023:i:1:d:10.1007_s43071-022-00032-9
    DOI: 10.1007/s43071-022-00032-9
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Spatial weighting matrix; Cross-country spillovers; Spatial estimation;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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