Testing for Clustering Under Switching

Igor Custodio João
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Igor Custodio João: Vrije Universiteit Amsterdam

No 24-052/III, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: I refine the test for clustering of Patton and Weller (2022) to allow for cluster switching. In a multivariate panel setting, clustering on time- averages produces consistent estimators of means and group assignments. Once switching is introduced, we lose the consistency. In fact, under switch- ing the time-averaged k-means clustering converges to equal, indistinguishable means. This causes the test for a single cluster to lose power under the alternative of multiple clusters. Power can be regained by clustering the N times T observations independently and carefully subsampling the time dimension. When applied to the empirical setting of Bonhomme and Manresa (2015) of an autoregression of democracy in a panel of countries, we are able to detect clusters in the data under noisier conditions than the original test.

JEL-codes: C12 C33 C38 (search for similar items in EconPapers)
Date: 2024-08-22
New Economics Papers: this item is included in nep-ecm and nep-ets
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