A panel clustering approach to analyzing bubble behavior

Liu, Yanbo, Phillips, Peter Charles Bonest and Yu, Jun (2023) A panel clustering approach to analyzing bubble behavior. International Economic Review, 64 (4), 1347-1395. (doi:10.1111/iere.12647).

Record type: Article

Abstract

This study provides new mechanisms for identifying and estimating explosive bubbles in mixed-root panel autoregressions with a latent group structure. A post-clustering approach is employed that combines k-means clustering with right-tailed panel-data testing. Uniform consistency of the k-means algorithm is established. Pivotal null limit distributions of the tests are introduced. A new method is proposed to consistently estimate the number of groups. Monte Carlo simulations show that the proposed methods perform well in finite samples; and empirical applications of the proposed methods identify bubbles in the US and Chinese housing markets and the US stock market.

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Liu_Phillips_Yu_2022_D3B_pcb - Accepted Manuscript

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Accepted/In Press date: 26 May 2023

e-pub ahead of print date: 26 May 2023

Published date: November 2023

Additional Information: Funding Information: Thanks go to Jesus Fernandez‐Villaverde (Editorial Board), three referees, Yong Bao, Timothy Christensen, Liyu Dou, Wayne Gao, Jia Li, Tassos Magdalinos, Morten Nielsen, Frank Schorfheide, Liangjun Su, Cheng Xu, Yichong Zhang, and the participants of the 2021 SH3, the 2022 SETA, and the 2022 AMES conferences, and the 2022 Symposium on Econometrics at XMU for helpful suggestions and discussions. Phillips acknowledges support from a Lee Kong Chian Fellowship at SMU, the Kelly Fund at the University of Auckland, and the NSF under Grant No. SES 18‐50860. Yu acknowledges that this research/project is supported by the Ministry of Education, Singapore, under its Academic Research Fund (AcRF) Tier 2 (Award Number MOE‐T2EP402A20‐0002). Publisher Copyright: © 2023 the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.