To Pool or Not to Pool: A Partially Heterogeneous Framework

Vasilis Sarafidis and Neville Weber

MPRA Paper from University Library of Munich, Germany

Abstract: This paper proposes a partially heterogeneous framework for the analysis of panel data with fixed T , based on the concept of "partitional clustering". In particular, the population of cross-sectional units is grouped into clusters, such that parameter homogeneity is maintained only within clusters. To de- termine the (unknown) number of clusters we propose an information-based criterion, which, as we show, is strongly consistent - i.e. it selects the true number of clusters with probability one as N approaches infinity. Simulation experiments show that the proposed criterion performs well even with moderate N and the resulting parameter estimates are close to the true values. We apply the method in a panel data set of commercial banks in the US and we find four clusters, with significant differences in the slope parameters across clusters.

Keywords: Partial heterogeneity; partitional clustering; information-based criterion; model selection (search for similar items in EconPapers)
JEL-codes: C13 C33 C51 (search for similar items in EconPapers)
Date: 2009-12-08
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (2)

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https://mpra.ub.uni-muenchen.de/36155/1/MPRA_paper_36155.pdf revised version (application/pdf)

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