Publication Type

Journal Article

Version

submittedVersion

Publication Date

3-2024

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, Nuclear norm regularization, Sequential testing K-means algorithm, Structural break

Discipline

Econometrics

Research Areas

Econometrics

Publication

Journal of Econometrics

Volume

240

Issue

1

First Page

1

Last Page

24

ISSN

0304-4076

Identifier

10.1016/j.jeconom.2024.105685

Publisher

Elsevier: 24 months

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1016/j.jeconom.2024.105685

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