Bayesian inference for dynamic spatial quantile models with interactive effects

Abstract: With the rapid advancement of information technology and data collection systems, large-scale spatial panel data presents new methodological and computational challenges. This paper introduces a dynamic spatial panel quantile model that incorporates unobserved heterogeneity. The proposed model captures the dynamic structure of panel data, high-dimensional cross-sectional dependence, and allows for heterogeneous regression coefficients. To estimate the model, we propose a novel Bayesian Markov Chain Monte Carlo (MCMC) algorithm. Contributions to Bayesian computation include the development of quantile randomization, a new Gibbs sampler for structural parameters, and stabilization of the tail behavior of the inverse Gaussian random generator. We establish Bayesian consistency for the proposed estimation method as both the time and cross-sectional dimensions of the panel approach infinity. Monte Carlo simulations demonstrate the effectiveness of the method. Finally, we illustrate the applicability of the approach through a case study on the quantile co-movement structure of the gasoline market.