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These models, however, require the econometrician to predefine the blocks, leading to potential misspecification. In Monte Carlo experiments, we show that even a small misspecification can lead to substantial declines in fit. We propose an alternative model in which the blocks are chosen endogenously. The model is estimated in a Bayesian framework using a hierarchical prior, which allows us to incorporate series\u2010level covariates that may influence and explain how the series are grouped. Using international business cycle data, we find our country clusters differ in important ways from those identified by geography alone. In particular, we find that similarities in institutions (e.g., legal systems, language diversity) may be just as important as physical proximity for analyzing business cycle comovements.<\/jats:p>","DOI":"10.1002\/jae.2577","type":"journal-article","created":{"date-parts":[[2017,5,31]],"date-time":"2017-05-31T07:52:44Z","timestamp":1496217164000},"page":"1261-1276","source":"Crossref","is-referenced-by-count":35,"title":["An endogenously clustered factor approach to international business cycles"],"prefix":"10.1002","volume":"32","author":[{"given":"Neville","family":"Francis","sequence":"first","affiliation":[{"name":"Department of Economics University of North Carolina Chapel Hill NC, USA"}],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"Michael T.","family":"Owyang","sequence":"additional","affiliation":[{"name":"Research Division Federal Reserve Bank of St. Louis St. Louis, MO USA"}],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"Ozge","family":"Savascin","sequence":"additional","affiliation":[{"name":"Economic and Strategic Research Fannie Mae Washington DC USA"}],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"311","published-online":{"date-parts":[[2017,5,31]]},"reference":[{"key":"e_1_2_8_2_1","first-page":"335","article-title":"International business cycles","volume":"83","author":"Ahmed S.","year":"1993","journal-title":"American Economic Review"},{"key":"e_1_2_8_3_1","doi-asserted-by":"publisher","DOI":"10.1111\/1468-0262.00392"},{"key":"e_1_2_8_4_1","doi-asserted-by":"publisher","DOI":"10.1111\/1468-0262.00273"},{"key":"e_1_2_8_5_1","doi-asserted-by":"publisher","DOI":"10.1016\/j.jmoneco.2004.08.002"},{"key":"e_1_2_8_6_1","doi-asserted-by":"publisher","DOI":"10.1002\/jae.2501"},{"key":"e_1_2_8_7_1","doi-asserted-by":"publisher","DOI":"10.1016\/j.jeconom.2005.01.027"},{"key":"e_1_2_8_8_1","doi-asserted-by":"publisher","DOI":"10.3982\/ECTA11319"},{"key":"e_1_2_8_9_1","doi-asserted-by":"publisher","DOI":"10.1093\/biomet\/81.3.541"},{"key":"e_1_2_8_10_1","series-title":"(chapter 2)","volume-title":"Bayesian Statistics 9","author":"Carvalho C. 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