Spatial autocorrelation or model misspecification? The help from RESET and the curse of small samples
AbstractIn regression analysis,model misspecification can produce spurious spatial correlation in the residuals. By means of Monte Carlo simulations, I show that the RESET test can help to disentangle this conundrum in large samples. Small samples can pose a serious challenge to finding the correct model.
KeywordsSpatial autocorrelation, Model misspecification, RESET, Monte Carlo simulations
JEL classificationR12, C12, C15, R15, C21