De Vos, I. and Westerlund, J. (2026). Panel Sequential Group Estimation of Interactive Effects Models Oxford Bulletin of Economics and Statistics.
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Affiliated author
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Publication year2026
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JournalOxford Bulletin of Economics and Statistics
This paper proposes a novel procedure to identify latent groups in the slopes of panel data models with interactive effects. The method is straightforward to apply and relies only on closed-form estimators when evaluating the objective function. This achieves substantial computational gains compared to alternative non-linear methods and enables estimation even in large datasets. We establish consistency of the procedure and confirm through simulations its good finite sample properties and the validity of post-grouping inference routines. The procedure's empirical usefulness is illustrated with applications to output growth and international trade.