Structural interactions in spatial panels

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    Abstract

    Until recently, considerable effort has been devoted to the estimation of panel data regression models without adequate attention being paid to the drivers of interaction amongst cross-section and spatial units. We discuss some new methodologies in this emerging area and demonstrate their use in measurement and inferences on cross-section and spatial interactions. Specifically, we highlight the important distinction between spatial dependence driven by unobserved common factors and those based on a spatial weights matrix. We argue that purely factor-driven models of spatial dependence may be inadequate because of their connection with the exchangeability assumption. The three methods considered are appropriate for different asymptotic settings; estimation under structural constraints when N is fixed and T -> 8, whilst the methods based on GMM and common correlated effects are appropriate when T » N -> 8. Limitations and potential enhancements of the existing methods are discussed, and several directions for new research are highlighted. © 2010 Springer-Verlag.
    Original languageEnglish
    Pages (from-to)69-94
    Number of pages26
    JournalEmpirical Economics
    Volume40
    Issue number1
    DOIs
    Publication statusPublished - Feb 2011

    Keywords

    • Cross-sectional and spatial dependence
    • spatial weights matrix
    • spatial interactions
    • monetary policy committee
    • generalised method of moments
    • E42
    • E43
    • E50
    • E58

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