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Panel VAR Models with Spatial Dependence

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  • Mutl, Jan

    (Department of Economics, Institute for Advanced Studies, Vienna, Austria)

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Abstract

I consider a panel vector-autoregressive model with cross-sectional dependence of the disturbances characterized by a spatial autoregressive process. I propose a three-step estimation procedure. Its first step is an instrumental variable estimation that ignores the spatial correlation. In the second step, the estimated disturbances are used in a multivariate spatial generalized moments estimation to infer the degree of spatial correlation. The final step of the procedure uses transformed data and applies standard techniques for estimation of panel vector-autoregressive models. I compare the small-sample performance of various estimation strategies in a Monte Carlo study.

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File URL: http://www.ihs.ac.at/publications/eco/es-237.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Institute for Advanced Studies in its series Economics Series with number 237.

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Length: 38 pages
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:ihs:ihsesp:237

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Related research

Keywords: Spatial PVAR; Multivariate dynamic panel data model; Spatial GM; Spatial Cochrane-Orcutt transformation; Constrained maximum likelihood estimation;

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References

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  1. Bai, Jushan & Ng, Serena, 2008. "Large Dimensional Factor Analysis," Foundations and Trends(R) in Econometrics, now publishers, vol. 3(2), pages 89-163, June.
  2. Binder, Michael & Hsiao, Cheng & Pesaran, M. Hashem, 2005. "Estimation And Inference In Short Panel Vector Autoregressions With Unit Roots And Cointegration," Econometric Theory, Cambridge University Press, vol. 21(04), pages 795-837, August.
  3. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  4. Kelejian, Harry H. & Prucha, Ingmar R., 2004. "Estimation of simultaneous systems of spatially interrelated cross sectional equations," Journal of Econometrics, Elsevier, vol. 118(1-2), pages 27-50.
  5. Kapoor, Mudit & Kelejian, Harry H. & Prucha, Ingmar R., 2007. "Panel data models with spatially correlated error components," Journal of Econometrics, Elsevier, vol. 140(1), pages 97-130, September.
  6. O'Connell, Paul G. J., 1998. "The overvaluation of purchasing power parity," Journal of International Economics, Elsevier, vol. 44(1), pages 1-19, February.
  7. Chen, Xiaoheng & Conley, Timothy G., 2001. "A new semiparametric spatial model for panel time series," Journal of Econometrics, Elsevier, vol. 105(1), pages 59-83, November.
  8. Ahn, Seung C. & Schmidt, Peter, 1995. "Efficient estimation of models for dynamic panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 5-27, July.
  9. Hsiao, Cheng & Hashem Pesaran, M. & Kamil Tahmiscioglu, A., 2002. "Maximum likelihood estimation of fixed effects dynamic panel data models covering short time periods," Journal of Econometrics, Elsevier, vol. 109(1), pages 107-150, July.
  10. H. Kelejian, Harry & Prucha, Ingmar R., 2001. "On the asymptotic distribution of the Moran I test statistic with applications," Journal of Econometrics, Elsevier, vol. 104(2), pages 219-257, September.
  11. Michael Binder & Cheng Hsiao & Jan Mutl & M. Hashem Pesaran, 2002. "Computational Issues in the Estimation of Higher-Order Panel Vector Autoregressions," Computing in Economics and Finance 2002 345, Society for Computational Economics.
  12. Kelejian, Harry H & Prucha, Ingmar R, 1998. "A Generalized Spatial Two-Stage Least Squares Procedure for Estimating a Spatial Autoregressive Model with Autoregressive Disturbances," The Journal of Real Estate Finance and Economics, Springer, vol. 17(1), pages 99-121, July.
  13. Kelejian, Harry H & Prucha, Ingmar R, 1999. "A Generalized Moments Estimator for the Autoregressive Parameter in a Spatial Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 509-33, May.
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Cited by:
  1. Ana Angulo & F. Trívez, 2010. "The impact of spatial elements on the forecasting of Spanish labour series," Journal of Geographical Systems, Springer, vol. 12(2), pages 155-174, June.
  2. Arturas Juodis, 2013. "Cointegration Testing in Panel VAR Models Under Partial Identification and Spatial Dependence," UvA-Econometrics Working Papers 13-08, Universiteit van Amsterdam, Dept. of Econometrics.
  3. Arturas Juodis, 2013. "First Difference Transformation in Panel VAR models: Robustness, Estimation and Inference," UvA-Econometrics Working Papers 13-06, Universiteit van Amsterdam, Dept. of Econometrics.
  4. Herrera Gómez, Marcos & Ruiz Marín, Manuel & Mur Lacambra, Jesús, 2014. "Testing Spatial Causality in Cross-section Data," MPRA Paper 56678, University Library of Munich, Germany.

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