arXiv 21 Oct 2023 · Econometrics
arXiv:2310.14068 · PDF · DOI · OpenAlex · Extracted main text
This paper extends the linear grouped fixed effects (GFE) panel model to allow for heteroskedasticity from a discrete latent group variable. Key features of GFE are preserved, such as individuals belonging to one of a finite number of groups and group membership is unrestricted and estimated. Ignoring group heteroskedasticity may lead to poor classification, which is detrimental to finite sample bias and standard errors of estimators. I introduce the "weighted grouped fixed effects" (WGFE) estimator that minimizes a weighted average of group sum of squared residuals. I establish $\sqrt{NT}$-consistency and normality under a concept of group separation based on second moments. A test of group homoskedasticity is discussed. A fast computation procedure is provided. Simulations show that WGFE outperforms alternatives that exclude second moment information. I demonstrate this approach by considering the link between income and democracy and the effect of unionization on earnings.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | S. Bonhomme and E. Manresa (2015) Grouped patterns of heterogeneity in panel data | 0.874 | 24 | 5 | 67% |
| 2 | H. Yang and E. G. Tabak (2022) Conditional density estimation, latent variable discovery, and optimal transport | 0.843 | 4 | 3 | 75% |
| 3 | J. Bai and S. Ng (2002) Determining the number of factors in approximate factor models | 0.843 | 3 | 3 | 100% |
| 4 | D. Card (1996) The effect of unions on the structure of wages: A longitudinal analysis | 0.811 | 4 | 2 | 100% |
| 5 | R. B. Freeman (1984) Longitudinal analyses of the effects of trade unions | 0.811 | 4 | 2 | 100% |
| 6 | D. Acemoglu, S. Johnson, J. A. Robinson, and P. Yared (2008) Income and democracy | 0.737 | 3 | 2 | 100% |
| 7 | J. Aguilar and T. Boot (2022) Grouped heterogeneity in linear panel data models with heterogeneous error variances | 0.737 | 3 | 2 | 100% |
| 8 | J. Kim and L. Wang (2019) Hidden group patterns in democracy developments: Bayesian inference for grouped heterogeneity | 0.737 | 3 | 2 | 100% |
| 9 | S. Lloyd (1982) Least squares quantization in PCM | 0.737 | 3 | 2 | 100% |
| 10 | E. W. Forgy (1965) Cluster analysis of multivariate data: efficiency versus interpretability of classifications | 0.644 | 2 | 2 | 100% |
Showing the top 10 of 66 scored citations.