Prediction in the Panel Data Model with Spatial Correlation: the Case of Liquor
Abstract This paper considers the problem of prediction in a panel data regression model with spatial autocorrelation in the context of a simple demand equation for liquor. This is based on a panel of 43 states over the period 1965–1994. The spatial autocorrelation due to neighbouring states and the individual heterogeneity across states is taken explicitly into account. We compare the performance of several predictors of the states’ demand for liquor for 1 year and 5 years ahead. The estimators whose predictions are compared include OLS, fixed effects ignoring spatial correlation, fixed effects with spatial correlation, random-effects GLS estimator ignoring spatial correlation and random-effects estimator accounting for the spatial correlation. Based on RMSE forecast performance, estimators that take into account spatial correlation and heterogeneity across the states perform the best for forecasts 1 year ahead. However, for forecasts 2–5 years ahead, estimators that take into account the heterogeneity across the states yield the best forecasts.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 1 (2006)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RSEA20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RSEA20|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Baillie, R.T. & Baltagi, B.H., 1994. "Prediction from the Regression Model with one-way Error Components," Papers 9405, Michigan State - Econometrics and Economic Theory.
- J. A. Hausman, 1976.
"Specification Tests in Econometrics,"
185, Massachusetts Institute of Technology (MIT), Department of Economics.
- Wansbeek, Tom & Kapteyn, Arie, 1983. "A note on spectral decomposition and maximum likelihood estimation in models with balanced data," Statistics & Probability Letters, Elsevier, vol. 1(4), pages 213-215, June.
- Taub, Allan J., 1979. "Prediction in the context of the variance-components model," Journal of Econometrics, Elsevier, vol. 10(1), pages 103-107, April.
- Diebold, Francis X & Mariano, Roberto S, 2002.
"Comparing Predictive Accuracy,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 20(1), pages 134-44, January.
- Breusch, T.S. & Pagan, A.R., .
"The Lagrange multiplier test and its applications to model specification in econometrics,"
CORE Discussion Papers RP
412, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- T. S. Breusch & A. R. Pagan, 1980. "The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 239-253.
- Pesaran, M.H. & Smith, R., 1992.
"Estimating Long-Run Relationships From Dynamic Heterogeneous Panels,"
Cambridge Working Papers in Economics
9215, Faculty of Economics, University of Cambridge.
- Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
- Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
- Amemiya, Takeshi, 1971. "The Estimation of the Variances in a Variance-Components Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 12(1), pages 1-13, February.
- Baltagi, Badi H & Griffin, James M, 1995. "A Dynamic Demand Model for Liquor: The Case for Pooling," The Review of Economics and Statistics, MIT Press, vol. 77(3), pages 545-54, August.
- Kajal Lahiri, 2005. "Analysis of Panel Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(4), pages 1093-1095.
When requesting a correction, please mention this item's handle: RePEc:taf:specan:v:1:y:2006:i:2:p:175-185. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.