Spillovers in Space and Time: Where Spatial Econometrics and Global VAR Models Meet

37 Pages Posted: 6 Mar 2018

See all articles by J. Paul Elhorst

J. Paul Elhorst

University of Groningen - Faculty of Economics and Business

Marco Gross

International Monetary Fund (IMF); European Central Bank (ECB)

Eugen Tereanu

World Bank

Date Written: February 28, 2018

Abstract

We bring together the spatial and global vector autoregressive (GVAR) classes of econometric models by providing a detailed methodological review of where they meet in terms of structure, interpretation, and estimation methods. We discuss the structure of cross-section connectivity (weight) matrices used by these models and its implications for estimation. Primarily motivated by the continuously expanding literature on spillovers, we define a broad and measurable concept of spillovers. We formalize it analytically through the indirect effects used in the spatial literature and impulse responses used in the GVAR literature. Finally, we propose a practical step-by-step approach for applied researchers who need to account for the existence and strength of cross-sectional dependence in the data. This approach aims to support the selection of the appropriate modeling and estimation method and of choices that represent empirical spillovers in a clear and interpretable form.

Keywords: Weak and strong cross-sectional dependence, spatial models, GVARs, spillovers

JEL Classification: C33, C38, C51

Suggested Citation

Elhorst, J. Paul and Gross, Marco and Tereanu, Eugen, Spillovers in Space and Time: Where Spatial Econometrics and Global VAR Models Meet (February 28, 2018). ECB Working Paper No. 2134, ISBN: 978-92-899-3239-4. Available at SSRN: https://ssrn.com/abstract=3134525

J. Paul Elhorst

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands
050-363 3893 (Phone)
050-363 7337 (Fax)

Marco Gross (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Eugen Tereanu

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
205
Abstract Views
553
rank
148,414
PlumX Metrics