Grouped Patterns of Heterogeneity in Panel Data

Stéphane Bonhomme, Elena Manresa

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This paper introduces time-varying grouped patterns of heterogeneity in linear panel data models. A distinctive feature of our approach is that group membership is left unrestricted. We estimate the parameters of the model using a "grouped fixed-effects" estimator that minimizes a least squares criterion with respect to all possible groupings of the cross-sectional units. Recent advances in the clustering literature allow for fast and efficient computation. We provide conditions under which our estimator is consistent as both dimensions of the panel tend to infinity, and we develop inference methods. Finally, we allow for grouped patterns of unobserved heterogeneity in the study of the link between income and democracy across countries.

    Original languageEnglish (US)
    Pages (from-to)1147-1184
    Number of pages38
    JournalEconometrica
    Volume83
    Issue number3
    DOIs
    StatePublished - May 1 2015

    Keywords

    • Clustering
    • Democracy
    • Discrete heterogeneity
    • Fixed-effects
    • Panel data

    ASJC Scopus subject areas

    • Economics and Econometrics

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