Large-Sample Inference on SpatialDependence

We consider cross-sectional data that exhibit no spatial correla-tion, but are feared to be spatially dependent. We demonstrate that a spatialversion of the stochastic volatility model of financial econometrics, entailing aform of spatial autoregression, can explain such behaviour. The parameters areestimated by pseudo Gaussian maximum likelihood based on log-transformedsquares, and consistency and asymptotic normality are established. Asymptotically valid tests for spatial independence are developed.