Research

Testing for Clustering Under Switching

This is my Job Market Paper. You can download it in PDF here, or see here for a presentation. 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 switching the time-averaged k-means clustering converges to equal, indistinguishable means.

Dynamic clustering of multivariate panel data

2023 with André Lucas, Julia Schaumburg and Bernd Schwaab. Journal of Econometrics.. Computer code available at http://www.gasmodel.com/code.htm. We propose a dynamic clustering model for uncovering latent time-varying group structures in multivariate panel data. The model is dynamic in three ways. First, the cluster location and scale matrices are time-varying to track gradual changes in cluster characteristics over time. Second, all units can transition between clusters based on a Hidden Markov model (HMM).

Dynamic Nonparametric Clustering of Multivariate Panel Data

2022 with Julia Schaumburg, André Lucas and Bernd Schwaab. Published at the Journal of Financial Econometrics. Python code available on Github. Also a Tinbergen Institute discussion paper No. 21-040/III and ECB Working Paper No. 2577. Formely entitled Clustering dynamics and persistence for financial multivariate panel data. We introduce a new method for dynamic clustering of panel data with dynamics for cluster location and shape, cluster composition, and for the number of clusters.

Financial Development and Fragility: a clustering analysis

with Pietro Calice, André Lucas and Julia Schaumburg. We explore the potential correlations between financial development and fragility or institutional vulnerability using a sample of 137 countries observed over the period from 1998–2019 and World Bank indicators. We group countries into clusters that capture the different joint states of financial development and fragility. We do so with and without controls, and with and without allowing countries to switch cluster membership over time.

The natural interest rate and the Taylor rule in Brazil

2016 with Fernando de Holanda Barbosa and Felipe Diogo Camêlo. Published at the Revista Brasileira de Economia. This paper estimates the natural rate and the Taylor Rule for the Brazilian economy from 2003 to 2015. The natural rate in a small open economy is equal to the international real rate of interest, adjusted for the premium due to country risk and exchange rate risk. This framework allows decomposing the interest rate into components to understand why the Brazilian interbank market rate is so high when compared to other countries.

Dynamic clustering of multivariate panel data

2023

with André Lucas, Julia Schaumburg and Bernd Schwaab.
Journal of Econometrics..
Computer code available at http://www.gasmodel.com/code.htm.

We propose a dynamic clustering model for uncovering latent time-varying group structures in multivariate panel data. The model is dynamic in three ways. First, the cluster location and scale matrices are time-varying to track gradual changes in cluster characteristics over time. Second, all units can transition between clusters based on a Hidden Markov model (HMM). Finally, the HMM’s transition matrix can depend on lagged time-varying cluster distances as well as economic covariates. Monte Carlo experiments suggest that the units can be classified reliably in a variety of challenging settings. Incorporating dynamics in the cluster composition proves empirically important in a study of 299 European banks between 2008Q1 and 2018Q2. We find that approximately 3% of banks transition per quarter on average. Transition probabilities are in part explained by differences in bank profitability, suggesting that factors contributing to low profitability for some banks can lead to long-lasting changes in financial industry structure.

You can watch a 5-min poster presentation, given for the NBER-NSF Time Series Conference 2021: