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The Tempered Ordered Probit (TOP) model with an application to monetary policy

  • William H.Greene

    (Stern Business School, New York University, USA)

  • Max Gillman

    (University of Missouri, St Louis, USA)

  • Mark N. Harris

    (Curtis University, Perth, Australia)

  • Christopher Spencer

    (School of Business and Economics, Loughborough University)

We propose a Tempered Ordered Probit (TOP) model. Our contribution lies not only in explicitly accounting for an excessive number of observations in a given choice category - as is the case in the standard literature on in?ated models; rather, we introduce a new econometric model which nests the recently developed Middle In?ated Ordered Probit (MIOP) models of Bagozzi and Mukherjee (2012) and Brooks, Harris, and Spencer (2012) as a special case, and further, can be used as a speci?cation test of the MIOP, where the implicit test is described as being one of symmetry versus asymmetry. In our application, which exploits a panel data-set containing the votes of Bank of England Monetary Policy Committee (MPC) members, we show that the TOP model a¤ords the econometrician considerable ?exibility with respect to modelling the impact of di¤erent forms of uncertainty on interest rate decisions. Our ?ndings, we argue, reveal MPC members? asymmetric attitudes towards uncertainty and the changeability of interest rates.

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File URL: http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/TOPmodel_2013_10.pdf
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Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2013_10.

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Date of creation: Sep 2013
Date of revision: Sep 2013
Handle: RePEc:lbo:lbowps:2013_10
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