Egger, Peter Larch, Mario Pfaffermayr, Michael Walde, Janette F.
Year of Publication:
CESifo Working Paper 1558
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.
spatial autocorrelation hypothesis tests Monte Carlo studies maximum likelihood estimation generalized method of moments