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Likelihood Evaluation of High-Dimensional Spatial Latent Gaussian Models with Non-Gaussian Response Variables

Jean-François Richard

No 5778, Working Paper from Department of Economics, University of Pittsburgh

Abstract: We propose a generic algorithm for numerically accurate likelihood evaluation of a broad class of spatial models characterized by a high-dimensional latent Gaussian process and non-Gaussian response variables.The class of models under consideration includes specifications for discrete choices, event counts and limited dependent variables (truncation, censoring, and sample selection) among others.Our algorithm relies upon a novel implementation of Efficient Importance Sampling (EIS) specifically designed to exploit typical sparsity of high-dimensional spatial precision (or covariance) matrices. It is numerically very accurate and computationally feasible even for very high-dimensional latent processes. Thus Maximum Likelihood (ML) estimation of high-dimensional non-Gaussian spatial models, hitherto considered to be computationally prohibitive, becomes feasible. We illustrate our approach with ML estimation of a spatial probit for US presidential voting decisions and spatial count data models (Poisson and Negbin) for firm location choices.

New Economics Papers: this item is included in nep-cmp and nep-ecm
Date: 2015-01
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