Sample Splitting and Applied Econometric Modeling

Often in applied econometric work, the sample of observations is split so that within each subsample the observations can reasonably be assumed to have the same parameter values. In this article I present a procedure for sample splitting that uses cluster analysis techniques. The procedure is illustrated with data from a cross-section of households obtaining subsamples with homogeneous demand parameters. The groups turn out to be determined, primarily, by occupation of the family head. Demand behavior is studied in each of the resulting groups.