A Monte Carlo Study for Pure and Pretest Estimators of a Panel Data Model with Spatially Autocorrelated Disturbances

Badi Baltagi, Peter Egger and Michael Pfaffermayr

No 98, Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University

Abstract: This paper examines the consequences of model misspecification using a panel data model with spatially autocorrelated disturbances. The performance of several maximum likelihood estimators assuming different specifications for this model are compared using Monte Carlo experiments. These include (i) MLE of a random effects model that ignore the spatial correlation; (ii) MLE described in Anselin (1988) which assumes that the individual effects are not spatially autocorrelated; (iii) MLE described in Kapoor et al. (2006) which assumes that both the individual effects and the remainder error are governed by the same spatial autocorrelation; (iv) MLE descrdibed in Baltagi et al. (2006) which allows the spatial correlation parameter for the iondividual effects to be different from that of the remainder error term. The latter model encompasses the other models and allows the researcher to test these specifications as restrictions on the general model using LM and LR tests. In fact, based on these tests, we suggest a pretest estimator which is shown to perform well in Monte Carlo experiments, ranking a close second to the true MLE in mean squared error performance.

Keywords: Panel data; Spatially autocorrelated residuals; Pretest estimator; Maximum-likelihood estimation (search for similar items in EconPapers)
JEL-codes: C12 C23 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2007-12
New Economics Papers: this item is included in nep-ecm and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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https://surface.syr.edu/cpr/67/ (application/pdf)

Related works:
Journal Article: A Monte Carlo Study for Pure and Pretest Estimators of a Panel Data Model with Spatially Autocorrelated Disturbances (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:max:cprwps:98

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