Maximum Likelihood Estimation and Lagrange Multiplier Tests for Panel Seemingly Unrelated Regressions with Spatial Lag and Spatial Errors: An Application to Hedonic Housing Prices in Paris

Badi Baltagi and Georges Bresson

No 5227, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper proposes maximum likelihood estimators for panel seemingly unrelated regressions with both spatial lag and spatial error components. We study the general case where spatial effects are incorporated via spatial errors terms and via a spatial lag dependent variable and where the heterogeneity in the panel is incorporated via an error component specification. We generalize the approach of Wang and Kockelman (2007) and propose joint and conditional Lagrange Multiplier tests for spatial autocorrelation and random effects for this spatial SUR panel model. The small sample performance of the proposed estimators and tests are examined using Monte Carlo experiments. An empirical application to hedonic housing prices in Paris illustrates these methods. The proposed specification uses a system of three SUR equations corresponding to three types of flats within 80 districts of Paris over the period 1990-2003. We test for spatial effects and heterogeneity and find reasonable estimates of the shadow prices for housing characteristics.

Keywords: spatial lag; panel spatial dependence; maximum likelihood; Lagrange multiplier tests; hedonic housing prices; spatial error; SUR (search for similar items in EconPapers)
JEL-codes: C31 C33 R21 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2010-09
New Economics Papers: this item is included in nep-ecm, nep-geo and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - published in: Journal of Urban Economics, 2011, 69 (1), 24-42

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Journal Article: Maximum likelihood estimation and Lagrange multiplier tests for panel seemingly unrelated regressions with spatial lag and spatial errors: An application to hedonic housing prices in Paris (2011)
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