Modified QML estimation of spatial autoregressive models with unknown heteroskedasticity and nonnormality

Shew Fan Liu and Zhenlin Yang

Regional Science and Urban Economics, 2015, vol. 52, issue C, 50-70

Abstract: In the presence of heteroskedasticity, Lin and Lee (2010) show that the quasi-maximum likelihood (QML) estimator of the spatial autoregressive (SAR) model can be inconsistent as a ‘necessary’ condition for consistency can be violated, and thus propose robust GMM estimators for the model. In this paper, we first show that this condition may hold in certain situations and when it does the regular QML estimator can still be consistent. In cases where this condition is violated, we propose a simple modified QML estimation method robust against unknown heteroskedasticity. In both cases, asymptotic distributions of the estimators are derived, and methods for estimating robust variances are given, leading to robust inferences for the model. Extensive Monte Carlo results show that the modified QML estimator outperforms the GMM and QML estimators even when the latter is consistent. The proposed methods are then extended to the more general SARAR models.

Keywords: Spatial dependence; Unknown heteroskedasticity; Nonnormality; Modified QML estimator; Robust standard error; SARAR models (search for similar items in EconPapers)
JEL-codes: C10 C13 C15 C21 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Related works:
Working Paper: Modified QML Estimation of Spatial Autoregressive Models with Unknown Heteroskedasticity and Nonnormality (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:52:y:2015:i:c:p:50-70

DOI: 10.1016/j.regsciurbeco.2015.02.003

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