Panel data models with time-varying latent group structures

Yiren Wang, Peter Phillips and Liangjun Su ()

Journal of Econometrics, 2024, vol. 240, issue 1

Abstract: This paper considers a linear panel model with interactive fixed effects and unobserved individual and time heterogeneities that are captured by some latent group structures and an unknown structural break, respectively. To enhance realism, the model may have different numbers of groups and/or different group memberships before and after the break. With preliminary nuclear norm regularized estimation followed by row- and column-wise linear regressions, we estimate the break point based on the idea of binary segmentation and the latent group structures together with the number of groups before and after the break by sequential testing K-means algorithm simultaneously. It is shown that the break point, the number of groups and the group memberships can each be estimated correctly with probability approaching one. Asymptotic distributions of the estimators of the slope coefficients are established. Monte Carlo simulations demonstrate excellent finite sample performance for the proposed estimation algorithm. An empirical application to real house price data across 377 Metropolitan Statistical Areas in the US from 1975 to 2014 suggests the presence both of structural breaks and of changes in group membership.

Keywords: Interactive fixed effects; Latent group structure; Structural break; Nuclear norm regularization; Sequential testing K-means algorithm (search for similar items in EconPapers)
JEL-codes: C23 C33 C38 C51 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Panel Data Models with Time-Varying Latent Group Structures (2023)
Working Paper: Panel Data Models with Time-Varying Latent Group Structures (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:240:y:2024:i:1:s0304407624000319

DOI: 10.1016/j.jeconom.2024.105685

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