An Application of Spatial Econometrics in Relation to Hedonic House Price Modelling

This paper applies spatial econometrics in relation to hedonic house price modelling. We present and use some basic acknowledged spatial model alternatives and a battery of relevant tests. Geographically weighted regression, semiparametric analysis, and the mixed spatial Durbin model are also applied. The purpose is to detect missing spatial variables, misspecified functional form and spatial heterogeneity in estimated parameters. Such misspecifications have been shown to give spurious results in relation to some frequently used directional based tests. We achieve significant model improvement, so the paper should be of general interest as an example of practical econometric modelling within the field.