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Hidden group patterns in democracy developments: Bayesian inference for grouped heterogeneity

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  • Jaeho Kim
  • Le Wang

Abstract

We propose a nonparametric Bayesian approach to estimate time‐varying grouped patterns of heterogeneity in linear panel data models. Unlike the classical approach in Bonhomme and Manresa (Econometrica, 2015, 83, 1147–1184), our approach can accommodate selection of the optimal number of groups and model estimation jointly, and also be readily extended to quantify uncertainties in the estimated group structure. Our proposed approach performs well in Monte Carlo simulations. Using our approach, we successfully replicate the estimated relationship between income and democracy in Bonhomme and Manresa and the group characteristics when we use the same number of groups. Furthermore, we find that the optimal number of groups could depend on model specifications on heteroskedasticity and discuss ways to choose models in practice.

Suggested Citation

  • Jaeho Kim & Le Wang, 2019. "Hidden group patterns in democracy developments: Bayesian inference for grouped heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 34(6), pages 1016-1028, September.
    • Handle: RePEc:wly:japmet:v:34:y:2019:i:6:p:1016-1028
    DOI: 10.1002/jae.2734
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    References listed on IDEAS

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    Cited by:

    1. Daniel J. Lewis & Davide Melcangi & Laura Pilossoph & Aidan Toner‐Rodgers, 2023. "Approximating grouped fixed effects estimation via fuzzy clustering regression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(7), pages 1077-1084, November.
    2. Jorge A. Rivero, 2023. "Unobserved Grouped Heteroskedasticity and Fixed Effects," Papers 2310.14068, arXiv.org, revised Oct 2023.
    3. Iris Kesternich & Bettina Siflinger & James P. Smith & Franziska Valder, 2022. "Relationship Stability: Evidence from Labor and Marriage Markets," CEBI working paper series 22-20, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    4. Creal, Drew & Kim, Jaeho, 2024. "Bayesian estimation of cluster covariance matrices of unknown form," Journal of Econometrics, Elsevier, vol. 241(1).
    5. Boyuan Zhang, 2022. "Incorporating Prior Knowledge of Latent Group Structure in Panel Data Models," Papers 2211.16714, arXiv.org, revised Oct 2023.
    6. Boyuan Zhang, 2020. "Forecasting with Bayesian Grouped Random Effects in Panel Data," Papers 2007.02435, arXiv.org, revised Oct 2020.

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