Spatial Unit Roots and Spurious Regression

Ulrich K. Müller; Mark W. Watson

doi:10.3982/ecta21654

journal article Jan 01, 2024

Spatial Unit Roots and Spurious Regression

Ulrich K. Müller Mark W. Watson

Econometrica Vol. 92 No. 5 pp. 1661-1695 · JSTOR

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Abstract

This paper proposes a model for, and investigates the consequences of, strong spatial dependence in economic variables. Our findings echo those of the corresponding “unit root” time series literature: Spatial unit root processes induce spuriously significant regression results, even with clustered standard errors or spatial HAC corrections. We develop large‐sample valid unit root and stationarity tests that can detect such strong spatial dependence. Finally, we use simulations to study strategies for valid inference in regressions with persistent spatial data, such as spatial analogues of first‐differencing transformations. Regressions from Chetty, Hendren, Kline, and Saez (2014) are used to illustrate the issues and methods.

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Details

Published: Jan 01, 2024
Vol/Issue: 92(5)
Pages: 1661-1695

Authors

U

Ulrich K. Müller

Department of Economics, Princeton University

M

Mark W. Watson

Department of Economics, Princeton University

Funding

National Science Foundation

Cite This Article

Ulrich K. Müller, Mark W. Watson (2024). Spatial Unit Roots and Spurious Regression. Econometrica, 92(5), 1661-1695. https://doi.org/10.3982/ecta21654

Spatial Unit Roots and Spurious Regression

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