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Subgraph Network Random Effects Error Components Models: Specification and Testing

Author

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  • Montes-Rojas Gabriel

    (CONICET and Instituto Interdisciplinario de Economía Política de Buenos Aires (IIEP-BAIRES-UBA), Facultad de Ciencias Económicas, Universidad de Buenos Aires, Av. Córdoba 2122 2do piso, C1120AAQ, Ciudad Autónoma de Buenos Aires, Argentina)

Abstract

This paper develops a subgraph random effects error components model for network data linear regression where the unit of observation is the node. In particular, it allows for link and triangle specific components, which serve as a basal model for modeling network effects. It then evaluates the potential effects of ignoring network effects in the estimation of the coefficients’ variance-covariance matrix. It also proposes consistent estimators of the variance components using quadratic forms and Lagrange Multiplier tests for evaluating the appropriate model of random components in networks. Monte Carlo simulations show that the tests have good performance in finite samples. It applies the proposed tests to the Call interbank market in Argentina.

Suggested Citation

  • Montes-Rojas Gabriel, 2022. "Subgraph Network Random Effects Error Components Models: Specification and Testing," Journal of Econometric Methods, De Gruyter, vol. 11(1), pages 17-34, January.
    • Handle: RePEc:bpj:jecome:v:11:y:2022:i:1:p:17-34:n:2
    DOI: 10.1515/jem-2021-0001
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    More about this item

    Keywords

    networks; clusters; Moulton factor;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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