Maximum Likelihood Estimation and Lagrange Multiplier Tests for Panel Seemingly Unrelated Regressions with Spatial Lag and Spatial Errors: An Application to Hedonic Housing Prices in Paris

48 Pages Posted: 12 Oct 2010

See all articles by Badi H. Baltagi

Badi H. Baltagi

Syracuse University - Maxwell School of Citizenship and Public Affairs; IZA Institute of Labor Economics; Syracuse University - Center for Policy Research

Georges Bresson

ERMES (CNRS), Université Panthéon-Assas Paris II

Abstract

This paper proposes maximum likelihood estimators for panel seemingly unrelated regressions with both spatial lag and spatial error components. We study the general case where spatial effects are incorporated via spatial errors terms and via a spatial lag dependent variable and where the heterogeneity in the panel is incorporated via an error component specification. We generalize the approach of Wang and Kockelman (2007) and propose joint and conditional Lagrange Multiplier tests for spatial autocorrelation and random effects for this spatial SUR panel model. The small sample performance of the proposed estimators and tests are examined using Monte Carlo experiments. An empirical application to hedonic housing prices in Paris illustrates these methods. The proposed specification uses a system of three SUR equations corresponding to three types of flats within 80 districts of Paris over the period 1990-2003. We test for spatial effects and heterogeneity and find reasonable estimates of the shadow prices for housing characteristics.

Keywords: hedonic housing prices, Lagrange multiplier tests, maximum likelihood, panel spatial dependence, spatial lag, spatial error, SUR

JEL Classification: C31, C33, R21

Suggested Citation

Baltagi, Badi H. and Bresson, Georges, Maximum Likelihood Estimation and Lagrange Multiplier Tests for Panel Seemingly Unrelated Regressions with Spatial Lag and Spatial Errors: An Application to Hedonic Housing Prices in Paris. IZA Discussion Paper No. 5227, Available at SSRN: https://ssrn.com/abstract=1690065

Badi H. Baltagi (Contact Author)

Syracuse University - Maxwell School of Citizenship and Public Affairs ( email )

400 Eggers Hall
Syracuse, NY 13244
United States

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Syracuse University - Center for Policy Research ( email )

Syracuse, NY 13244
United States
315-443-1630 (Phone)
315-443-1081 (Fax)

HOME PAGE: http://www.maxwell.syr.edu/cpr_about.aspx?id=6442451316

Georges Bresson

ERMES (CNRS), Université Panthéon-Assas Paris II ( email )

12 Place du Panthéon
Paris, Cedex 5, 75005
France

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