University of Illinois Urbana-Champaign

Spatial Archimedean-Copulas Maximum Likelihood Estimation With Endogenous Spatial Weights Matrices

Lee, Jieun

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JieunLee_spatial_Archcopula_mle_endoW_Sep3rdwk.pdf

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https://hdl.handle.net/2142/114499

Description

Title
Spatial Archimedean-Copulas Maximum Likelihood Estimation With Endogenous Spatial Weights Matrices
Author(s)
Lee, Jieun
Issue Date
2022-09-16
Keyword(s)
Archimedean copula, maximum likelihood estimation, dependence in the error terms, dependence at the extreme values (tail dependence), endogenous spatial weights matrices.
Abstract
Spatial ecoometrics involves spatial weights matrices (W) to capture the effect of interactions among spatial units on the economic outcomes. Commonly, the intuitive use in W has been found in the geographical features. If W is constructed by non-predetermined distances, however, it could be endogenous and thus the conventional spatial autoregressive estimator (SAR) may not be consistent. The Quasi Maximum Likelihood Estimation (QMLE) specified under a normal distribution is known to be consistent and asymptotically normal (Qu and Lee, 2015). However, there do exist some situations where such specification is not enough. Particularly, in case where the variables are dependent at the extreme values or have heavy tail dependence, estimators specified under a normal distribution do not work well as the tail dependence is not inferred. In this paper, I propose the Spatial Archimedean-Copulas Maximum Likelihood (ML) estimator to control the endogeneity of W when the disturbance terms are dependent at the extreme values. A Monte Carlo simulation supports the analytics and shows its nice finite sample properties.
Type of Resource
Work in progress
Language
en
Handle URL
https://hdl.handle.net/2142/114499

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Research and Publications - Economics PRIMARY