Latent Variable Interactions With Ordered-Categorical Indicators: Comparisons of Unconstrained Product Indicator and Latent Moderated Structural Equations Approaches

Methods to handle ordered-categorical indicators in latent variable interactions have been developed, yet they have not been widely applied. This article compares the performance of two popular latent variable interaction modeling approaches in handling ordered-categorical indicators: unconstrained product indicator (UPI) and latent moderated structural equations (LMS). We conducted a simulation study across sample sizes, indicators’ distributions and category conditions. We also studied four strategies to create sets of product indicators for UPI. Results supported using a parceling strategy to create product indicators in the UPI approach or using the LMS approach when the categorical indicators are symmetrically distributed. We applied these models to study the interaction effect between third- to fifth-grade students’ social skills improvement and teacher–student closeness on their state English language arts test scores.