SPATIAL LAGS AND SPATIAL ERRORS REVISITED: SOME MONTE CARLO EVIDENCE

Abstract

From a theoretical point of view, a spatial econometric model can contain both a spatially lagged dependent variable (spatial lag) and a spatially autocorrelated error term (spatial error). However, such models are rarely used in practice. This is because (assuming a lattice model approach is used for both the spatial lag and spatial error) the model is difficult to estimate¹ unless the weight matrices are different for the spatial lag and the spatial error.

Citation

Dubin, R. (2004), "SPATIAL LAGS AND SPATIAL ERRORS REVISITED: SOME MONTE CARLO EVIDENCE", Lesage, J.P. and Kelley Pace, R. (Ed.) Spatial and Spatiotemporal Econometrics (Advances in Econometrics, Vol. 18), Emerald Group Publishing Limited, Leeds, pp. 75-98. https://doi.org/10.1016/S0731-9053(04)18002-X