Grouped patterns of heterogeneity in panel data. (English) Zbl 1410.62100

Bonhomme, Stéphane; Manresa, Elena

Econometrica 83, No. 3, 1147-1184 (2015).

Summary: 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.

MSC:

62H30	Classification and discrimination; cluster analysis (statistical aspects)
62P20	Applications of statistics to economics

Keywords:

discrete heterogeneity; panel data; fixed-effects; clustering; democracy