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Faculty of Economics

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Bhattacharjee, A., Ditzen, J. and Holly, S.

Spatial and Spatio-temporal Engle-Granger representations, Networks and Common Correlated Effects

CWPE2075

Abstract: We provide a way of representing spatial and temporal equilibria in terms of a Engle-Granger representation theorem in a panel setting. We use the mean group, common correlated effects estimator plus multiple testing to provide a set of weakly cross correlated correlations that we treat as spatial weights. We apply this model to the 324 local authorities of England, and show that our approach successfully mops up weak cross section correlations as well as strong cross sectional correlations.

Keywords: Spatio-temporal Engle-Granger Theorems, cross sectional dependence

JEL Codes: C21 C22 C23 R3

Author links: Sean Holly  

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe2075.pdf