Estimation of Panel Group Structure Models with Structural Breaks in Group Memberships and Coefficients

By R. Lumsdaine, Ryo Okui, Wendung Wang. Social Science Research Network, 2020

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This paper considers linear panel data models with a grouped pattern of heterogeneity when the latent group membership structure and/or the values of slope coefficients change at a break point. We propose a least squares approach to jointly estimate the break point, group membership structure, and coefficients. The proposed estimators are consistent even in relatively short panels. The asymptotic distribution of the coefficient estimators is identical to that under known break point and group structure. Monte Carlo simulations and an empirical example illustrate the use of the approach and associated inference.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/e665cdbb4f06e0a057e81c59c84386f5df170ad6