A Spatial Panel Structural Vector Autoregressive Model with Interactive Effects and Its Simulation

The existing spatial panel structural vector auto-regressive model can effectively capture the time and spatial dynamic dependence of endogenous variables. However, the hypothesis that the common factors have the same effect for all spatial units is unreasonable. Therefore, incorporating time effects, spatial effects, and time-individual effects, this paper develops a more general spatial panel structural vector autoregressive model with interactive effects (ISpSVAR) that can reflect the different effects of common factors on different spatial units. Additionally, based on whether or not the common factors can be observed, this paper proposes procedures to estimate ISpSVAR separately and studies the finite sample properties of estimators by Monte Carlo simulation. The simulation results show the effectiveness of the proposed ISpSVAR model and its estimation procedures.

Automated summary

This paper introduces a new spatial panel structural vector autoregressive model with interactive effects (ISpSVAR) that can better capture the varying effects of common factors on different spatial units. Procedures for estimating ISpSVAR are proposed based on whether common factors are observable. Simulation results support the effectiveness of the proposed model and estimation procedures.