Title: Testing misspecification in spatial autoregressive models
Authors: Jungyoon Lee - Royal Holloway, University of London (United Kingdom) [presenting]
Abstract: Spatial autoregressive (SAR) and related models offer flexible, yet parsimonious, ways to model spatial or network interaction. However, SAR specifications rely on a particular parametric functional form and an exogenous choice of the so-called spatial weight matrix. Moreover, the choice of SAR model over other alternatives, such as Spatial Durbin (SD) or Spatial Lagged X (SLX) models, is often arbitrary and unwarranted. The aim is to develops a specification test in SAR model that can detect general forms of misspecification including that of the spatial weight matrix, functional form and the model itself. We extend the framework of conditional moment testing to a general spatial setting. We derive the asymptotic distribution of our test statistic under the null hypothesis of correct SAR specification and show consistency of the test. We also carry out a small Monte Carlo study of finite sample performance.