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Econometrica Vol. 83 No. 3 2015

Grouped Patterns of Heterogeneity in Panel Data

Stéphane Bonhomme1; Elena Manresa2

1 Dept. of Economics; University of Chicago; 1126 E. 59th Street Chicago IL 60637 U.S.A. · 2 The Sloan School of Management; Massachusetts Institute of Technology; 100 Main Street, E62 Cambridge MA 02142 U.S.A.

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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.

DOI
10.3982/ecta11319
Volume
83
Issue
3
Pages
1147-1184
Language
en
Sources
bibtex:phds-export.bib crossref openalex

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