Adding Spatially-Correlated Errors Can Mess Up the Fixed Effect You Love

Many statisticians have had the experience of fitting a linear model with uncorrelated errors, then adding a spatially-correlated error term (random effect) and finding that the estimates of the fixed-effect coefficients have changed substantially. We show that adding a spatially-correlated error term to a linear model is equivalent to adding a saturated collection of canonical regressors, the coefficients of which are shrunk toward zero, where the spatial map determines both the canonical regressors and the relative extent of the coefficients’ shrinkage. Adding a spatially-correlated error term can also be seen as inflating the error variances associated with specific contrasts of the data, where the spatial map determines the contrasts and the extent of error-variance inflation. We show how to avoid this spatial confounding by restricting the spatial random effect to the orthogonal complement (residual space) of the fixed effects, which we call restricted spatial regression. We consider five proposed interpretations of spatial confounding and draw implications about what, if anything, one should do about it. In doing so, we debunk the common belief that adding a spatially-correlated random effect adjusts fixed-effect estimates for spatially-structured missing covariates. This article has supplementary material online.