A0962
Title: Estimation of group structures in panel models with individual fixed effects
Authors: Enno Mammen - Heidelberg University (Germany) [presenting]
Ralf Wilke - Copenhagen Business School (Denmark)
Kristina Maria Zapp - ZEW Mannheim (Germany)
Abstract: The fixed effects (FE) panel model is one of the main econometric tools for empirical economic research, despite the non-identifiability of the parameters on time-constant covariates. A new approach is presented to grouping FE in the linear panel model to reduce their dimensionality and ensure identifiability, therefore overcoming the main practical limitation of the linear FE model. By using unsupervised nonparametric density-based clustering, cluster patterns, including their location and number, are not restricted. The approach works with large data structures (units and groups) and only clusters units that are sufficiently similar, while leaving others as unclustered atoms. Asymptotic theory and rates of convergence are presented. With the help of simulations and an application to economic data it is shown that the suggested method performs well and gives more insightful and efficient results than conventional panel models.
