A Spatial Panel Quantile Model with Unobserved Heterogeneity

42 Pages Posted: 30 Jan 2020

See all articles by Tomohiro Ando

Tomohiro Ando

University of Melbourne - Melbourne Business School

Lina Lu

Federal Reserve Banks - Federal Reserve Bank of Boston

Date Written: December 19, 2019

Abstract

This paper introduces a spatial panel quantile model with unobserved heterogeneity. The proposed model is capable of capturing high-dimensional cross-sectional dependence and allows heterogeneous regression coefficients. For estimating model parameters, a new estimation procedure is proposed. When both the time and cross-sectional dimensions of the panel go to infinity, the uniform consistency and the asymptotic normality of the estimated parameters are established. In order to determine the dimension of the interactive fixed effects, we propose a new information criterion. It is shown that the criterion asymptotically selects the true dimension. Monte Carlo simulations document the satisfactory performance of the proposed method. Finally, the method is applied to study the quantile co-movement structure of the U.S. stock market by taking into account the input-output linkages as firms are connected through the input-output production network.

Keywords: Endogeneity; Heterogeneous panel; Quantile factor structure; Serial and cross-sectional correlations; Spatial effects

JEL Classification: C31, C33, E44

Suggested Citation

Ando, Tomohiro and Lu, Lina, A Spatial Panel Quantile Model with Unobserved Heterogeneity (December 19, 2019). Available at SSRN: https://ssrn.com/abstract=3516306 or http://dx.doi.org/10.2139/ssrn.3516306

Tomohiro Ando

University of Melbourne - Melbourne Business School ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia

Lina Lu (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

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