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CONSISTENT NON-GAUSSIAN PSEUDO MAXIMUM LIKELIHOOD ESTIMATORS OF SPATIAL AUTOREGRESSIVE MODELS

Published online by Cambridge University Press:  06 February 2023

Fei Jin
Affiliation:
Fudan University and Shanghai Institute of International Finance and Economics
Yuqin Wang*
Affiliation:
Shanghai University of Finance and Economics and Key Laboratory of Mathematical Economics (SUFE)
*
Address correspondence to Yuqin Wang, Institute for Advanced Research, Shanghai University of Finance and Economics, Shanghai 200433, China; e-mail: wang.yuqin@sufe.edu.cn

Abstract

This paper studies the non-Gaussian pseudo maximum likelihood (PML) estimation of a spatial autoregressive (SAR) model with SAR disturbances. If the spatial weights matrix $M_{n}$ for the SAR disturbances is normalized to have row sums equal to 1 or the model reduces to a SAR model with no SAR process of disturbances, the non-Gaussian PML estimator (NGPMLE) for model parameters except the intercept term and the variance $\sigma _{0}^{2}$ of independent and identically distributed (i.i.d.) innovations in the model is consistent. Without row normalization of $M_{n}$, the symmetry of i.i.d. innovations leads to consistent NGPMLE for model parameters except $\sigma _{0}^{2}$. With neither row normalization of $M_{n}$ nor the symmetry of innovations, a location parameter can be added to the non-Gaussian pseudo likelihood function to achieve consistent estimation of model parameters except $\sigma _{0}^{2}$. The NGPMLE with no added parameter can have a significant efficiency improvement upon the Gaussian PML estimator and the generalized method of moments estimator based on linear and quadratic moments. We also propose a non-Gaussian score test for spatial dependence, which can be locally more powerful than the Gaussian score test. Monte Carlo results show that our NGPMLE with no added parameter and the score test based on it perform well in finite samples.

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Type
ARTICLES
Copyright
© The Author(s), 2023. Published by Cambridge University Press

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