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Approximating grouped fixed effects estimation via fuzzy clustering regression

Lewis, Daniel J; Melcangi, Davide; Pilossoph, Laura; Toner‐Rodgers, Aidan; (2023) Approximating grouped fixed effects estimation via fuzzy clustering regression. Journal of Applied Econometrics 10.1002/jae.2997. (In press). Green open access

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Abstract

We propose a new, computationally efficient way to approximate the “grouped fixed effects” (GFE) estimator of Bonhomme and Manresa (2015), which estimates grouped patterns of unobserved heterogeneity. To do so, we generalize the fuzzy C‐means objective to regression settings. As the clustering exponent approaches 1, the fuzzy clustering objective converges to the GFE objective, which we recast as a standard generalized method of moments problem. We replicate the empirical results of Bonhomme and Manresa (2015) and show that our estimator delivers almost identical estimates. In simulations, we show that our approach offers improvements in terms of bias, classification accuracy, and computational speed.

Type: Article
Title: Approximating grouped fixed effects estimation via fuzzy clustering regression
Open access status: An open access version is available from UCL Discovery
DOI: 10.1002/jae.2997
Publisher version: https://doi.org/10.1002/jae.2997
Language: English
Additional information: Copyright © 2023 Federal Reserve Bank of New York and The Authors. Journal of Applied Econometrics published by John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License (http://creativecommons.org/licenses/by-nc/4.0/), which permits use, distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes.
Keywords: clustering, democracy, discrete heterogeneity, fixedeffects, panel data, unobserved heterogeneity
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10179834
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