Spatial error correction and cointegration in nonstationary panel data: regional house prices in Israel |
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Authors: | Michael Beenstock Daniel Felsenstein |
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Institution: | (1) Department of Economics, Hebrew University of Jerusalem, Jerusalem, Israel;(2) Department of Geography, Hebrew University of Jerusalem, Jerusalem, Israel;; |
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Abstract: | We “spatialize” residual-based panel cointegration tests for nonstationary spatial panel data in terms of a spatial error
correction model (SpECM). Local panel cointegration arises when the data are cointegrated within spatial units but not between
them. Spatial panel cointegration arises when the data are cointegrated through spatial lags between spatial units but not
within them. Global panel cointegration arises when the data are cointegrated both within and between spatial units. Spatial
error correction arises when error correction occurs within and between spatial units. We use nonstationary spatial panel
data on the housing market in Israel to illustrate the methodology. We show that regional house prices in Israel are globally
cointegrated in the long run and there is evidence of spatial error correction in the short run. |
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