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Abstract:

Econometrics Paper
Improved Lagrange Multiplier Tests in Spatial Autoregressions
Peter M Robinson and Francesca Rossi
October 2013
Paper No' EM/2013/566:
Full Paper (pdf)

JEL Classification: C29


Tags: spatial autocorrelation; lagrange multiplier test; edgeworth expansion; bootstrap; finite-sample corrections.

For testing lack of correlation against spatial autoregressive alternatives, Lagrange multiplier tests enjoy their usual computational advantages, but the (x squared) first-order asymptotic approximation to critical values can be poor in small samples. We develop refined tests for lack of spatial error correlation in regressions, based on Edgeworth expansion. In Monte Carlo simulations these tests, and bootstrap ones, generally significantly outperform x squared-based tests.