Small Sample Properties of Maximum Likelihood Versus Generalized Method of Moments Based Tests for Spatially Autocorrelated Errors
32 Pages Posted: 7 Nov 2005
Date Written: October 2005
Abstract
This paper undertakes a Monte Carlo study to compare MLE-based and GMM-based tests regarding the spatial autocorrelation coefficient of the error term in a Cliff and Ord type model. The main finding is that a Wald-test based on GMM estimation as derived by Kelejian and Prucha (2005a) performs surprisingly well. Our Monte Carlo study indicates that the GMM Wald-test is correctly sized even in small samples and exhibits the same power as their MLE-based counterparts. Since GMM estimates are much easier to calculate, the GMM Wald-test is recommended for applied researches.
Keywords: spatial autocorrelation, hypothesis tests, Monte Carlo studies, maximum likelihood estimation, generalized method of moments
JEL Classification: C12, C21, R10
Suggested Citation: Suggested Citation
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