Separable spatial modeling of spillovers and disturbances |
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| Authors: | R Kelley Pace Shuang Zhu |
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| Institution: | (1) LREC Endowed Chair of Real Estate, Department of Finance, E.J. Ourso College of Business Administration, Louisiana State University, Baton Rouge, LA 70803-6308, USA;(2) Department of Finance, E.J. Ourso College of Business Administration, Louisiana State University, Baton Rouge, LA 70803-6308, USA |
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| Abstract: | The single spatial parameter in the spatial autoregressive model affects both the estimation of spillovers and the estimation
of spatial disturbances. Consequently, the spatial autoregressive model has the undesirable property that if the degree of
spatial dependence in the disturbances differs from that in the spillovers, neither may be estimated correctly. We show theoretically
that the dependence structure for the spillovers and disturbances can differ and conduct a Monte Carlo experiment that verifies
these findings. In contrast, estimates from a simple separable model show little bias in all the scenarios. We also show differences
between the spatial autoregressive model and the separable model on five empirical examples. |
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