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The Standard Errors of Persistence
Author(s)
Date Issued
2019-04
Date Available
2019-06-11T06:52:23Z
Abstract
A large literature on persistence finds that many modern outcomes strongly reflect characteristics of the same places in the distant past. However, alongside unusually high t statistics, these regressions display severe spatial auto-correlation in residuals, and the purpose of this paper is to examine whether these two properties might be connected. We start by running artificial regressions where both variables are spatial noise and find that, even for modest ranges of spatial correlation between points, t statistics become severely inflated leading to significance levels that are in error by several orders of magnitude. We analyse 27 persistence studies in leading journals and find that in most cases if we replace the main explanatory variable with spatial noise the fit of the regression commonly improves; and if we replace the dependent variable with spatial noise, the persistence variable can still explain it at high significance levels. We can predict in advance which persistence results might be the outcome of fitting spatial noise from the degree of spatial auto-correlation in their residuals measured by a standard Moran statistic. Our findings suggest that the results of persistence studies, and of spatial regressions more generally, might be treated with some caution in the absence of reported Moran statistics and noise simulations.
Type of Material
Working Paper
Publisher
University College Dublin. School of Economics
Start Page
1
End Page
44
Series
UCD Centre for Economic Research Working Paper Series
WP19/13
Copyright (Published Version)
2019 the Author
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
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