A SPATIAL CLIFF‐ORD‐TYPE MODEL WITH HETEROSKEDASTIC INNOVATIONS: SMALL AND LARGE SAMPLE RESULTS*

ABSTRACT In this paper, we specify a linear Cliff‐and‐Ord‐type spatial model. The model allows for spatial lags in the dependent variable, the exogenous variables, and disturbances. The innovations in the disturbance process are assumed to be heteroskedastic with an unknown form. We formulate multistep GMM/IV‐type estimation procedures for the parameters of the model. We also give the limiting distributions for our suggested estimators and consistent estimators for their asymptotic variance‐covariance matrices. We conduct a Monte Carlo study to show that the derived large‐sample distribution provides a good approximation to the actual small‐sample distribution of our estimators.