Testing for random effects and serial correlation in spatial autoregressive models |
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Authors: | Gabriel V Montes-Rojas |
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Institution: | Department of Economics, City University London, Northampton Square, London EC1V 0HB, UK |
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Abstract: | This paper constructs and evaluates tests for random effects and serial correlation in spatial autoregressive panel data models. In these models, ignoring the presence of random effects not only produces misleading inference but inconsistent estimation of the regression coefficients. Two different estimation methods are considered: maximum likelihood and instrumental variables. For each estimator, optimal tests are constructed: Lagrange multiplier in the first case; Neyman's C(α) in the second. In addition, locally size-robust tests, for individual hypotheses under local misspecification of the unconsidered parameter, are constructed. Extensive Monte Carlo evidence is presented. |
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Keywords: | Spatial autoregressive Random effects Serial correlation LM tests |
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