Spatial Panel Data Model with Error Dependence: A Bayesian Separable Covariance Approach

34 Pages Posted: 11 Apr 2015

See all articles by Samantha Leorato

Samantha Leorato

Dep. Economics Management and Quantitative Methods

Maura Mezzetti

University of Rome Tor Vergata - Centre for International Studies on Economic Growth (CEIS)

Date Written: April 9, 2015

Abstract

A hierarchical Bayesian model for spatial panel data is proposed. The idea behind the proposed method is to analyze spatially dependent panel data by means of a separable covariance matrix. Let us indicate the observations as yit, i = 1, ... ,N regions and t = 1,... , T time, var(y), the covariance matrix of y is written as a Kronecker product of a purely spatial and a purely temporal covariance. On the one hand, the structure of separable covariances dramatically reduces the number of parameters, while on the other, the lack of a structured pattern for spatial and temporal covariances permits to capture possible unknown dependencies (both in time and space). The use of the Bayesian approach allows to overcome some of the difficulties of the classical (MLE or GMM based) approach. We present two illustrative examples: the estimation of cigarette price elasticity and of the determinants of the house price in 120 municipalities in the Province of Rome.

Keywords: Bayesian Inference, Kronecker Product, Separable Covariance Matrix, Inverted Wishart Distribution, Spatial-Temporal Dependence.

JEL Classification: C11, C23

Suggested Citation

Leorato, Samantha and Mezzetti, Maura, Spatial Panel Data Model with Error Dependence: A Bayesian Separable Covariance Approach (April 9, 2015). CEIS Working Paper No. 338, Available at SSRN: https://ssrn.com/abstract=2592476 or http://dx.doi.org/10.2139/ssrn.2592476

Samantha Leorato

Dep. Economics Management and Quantitative Methods ( email )

Milan
Italy

Maura Mezzetti (Contact Author)

University of Rome Tor Vergata - Centre for International Studies on Economic Growth (CEIS) ( email )

Via Columbia, 2
Rome, I-00133
Italy

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
69
Abstract Views
599
Rank
598,765
PlumX Metrics