Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2024-08-22
Number: 24-052/III
Author-Name: Igor Custodio João
Author-Workplace-Name: Vrije Universiteit Amsterdam 
Title: Testing for Clustering Under Switching
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.
Classification-JEL: C12, C33, C38
Keywords: 
File-URL: https://papers.tinbergen.nl/24052.pdf
File-Format: application/pdf
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Handle: RePEc:tin:wpaper:20240052