A model for ordinal responses with an application to policy interest rate
The decisions to reduce, leave unchanged, or increase (the price, rating, policy interest rate, etc.) are often characterized by abundant no-change outcomes that are generated by di¤erent processes. Moreover, the positive and negative responses can also be driven by distinct forces. To capture the unobserved heterogeneity this paper develops a two- stage cross-nested model, combining three ordered probit equations. In the policy rate setting context, the …rst stage, a policy inclination decision, determines a latent policy stance (loose, neutral or tight), whereas the two latent amount decisions, conditional on a loose or tight stance, …ne-tune the rate at the second stage. The model allows for the possible correlation among the three latent decisions. This approach identi…es the driving factors and probabilities of three types of zeros: the ”neutral” zeros, generated directly by the neutral policy stance, and two kinds of ”o¤set” zeros, the ”loose” and ”tight” zeros, generated by the loose or tight stance, o¤set at the second stage. Monte Carlo experiments show good performance in small samples. Both the simulations and empirical applications to the panel data on individual policymakers’ votes for the interest rate demonstrate the superiority with respect to the conventional and two-part models. Only a quarter of observed zeros appears to be generated by the neutral policy stance, suggesting a high degree of deliberate interest-rate smoothing by the central bank.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (0-22) 653 10 00
Fax: (0-22) 620 85 18
Web page: http://www.nbp.pl/Homen.aspx?f=/en/publikacje/materialy_i_studia/informacja_en.html
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Leung, Siu Fai & Yu, Shihti, 1996.
"On the choice between sample selection and two-part models,"
Journal of Econometrics,
Elsevier, vol. 72(1-2), pages 197-229.
- Leung, S.F. & Yu, S., 1992. "On the Choice Between Sample Selection and Two-Part Models," RCER Working Papers 337, University of Rochester - Center for Economic Research (RCER).
- James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
- Cragg, John G, 1971. "Some Statistical Models for Limited Dependent Variables with Application to the Demand for Durable Goods," Econometrica, Econometric Society, vol. 39(5), pages 829-44, September.
- Reinhart, Carmen & Kaminsky, Graciela, 2000.
"Las crisis gemelas: las causas de los problemas bancarios y de balanza de pagos
[The twin crises: Te causes of banking and balance of payments problems]," MPRA Paper 13842, University Library of Munich, Germany.
- Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
- Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
- Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
- David (David Patrick) Madden, 2006.
"Sample selection versus two-part models revisited : the case of female smoking and drinking,"
200604, School of Economics, University College Dublin.
- Madden, David, 2008. "Sample selection versus two-part models revisited: The case of female smoking and drinking," Journal of Health Economics, Elsevier, vol. 27(2), pages 300-307, March.
- Madden, David, 2006. "Sample Selection Versus Two-Part Models Revisited: The Case of Female Smoking and Drinking," Papers HRBWP23, Economic and Social Research Institute (ESRI).
- David Madden, 2006. "Sample Selection Versus Two-Part Models Revisited: the Case of Female Smoking and Drinking," Health, Econometrics and Data Group (HEDG) Working Papers 06/12, HEDG, c/o Department of Economics, University of York.
- Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-33, March.
- Harris, Mark N. & Zhao, Xueyan, 2007. "A zero-inflated ordered probit model, with an application to modelling tobacco consumption," Journal of Econometrics, Elsevier, vol. 141(2), pages 1073-1099, December.
- Gronau, Reuben, 1974. "Wage Comparisons-A Selectivity Bias," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1119-43, Nov.-Dec..
- Robert Brooks & Mark N. Harris & Christopher Spencer, 2012.
"Inflated Ordered Outcomes,"
Discussion Paper Series
2012_09, Department of Economics, Loughborough University, revised Oct 2012.
- William Greene, 2002.
"Convenient estimators for the panel probit model: Further results,"
02-06, New York University, Leonard N. Stern School of Business, Department of Economics.
- William Greene, 2004. "Convenient estimators for the panel probit model: Further results," Empirical Economics, Springer, vol. 29(1), pages 21-47, January.
- Wen, Chieh-Hua & Koppelman, Frank S., 2001. "The generalized nested logit model," Transportation Research Part B: Methodological, Elsevier, vol. 35(7), pages 627-641, August.
- Sirchenko, Andrei, 2010. "Policymakers' Votes and Predictability of Monetary Policy," University of California at San Diego, Economics Working Paper Series qt8qj3z3qg, Department of Economics, UC San Diego.
- Eichengreen, Barry & Watson, Mark W & Grossman, Richard S, 1985. "Bank Rate Policy under the Interwar Gold Standard: A Dynamic Probit Model," Economic Journal, Royal Economic Society, vol. 95(379), pages 725-45, September.
- Petra Gerlach-Kristen, 2004. "Is the MPC's Voting Record Informative about Future UK Monetary Policy?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(2), pages 299-313, 06.
- Heckman, James J, 1979.
"Sample Selection Bias as a Specification Error,"
Econometric Society, vol. 47(1), pages 153-61, January.
- Mullahy, John, 1986. "Specification and testing of some modified count data models," Journal of Econometrics, Elsevier, vol. 33(3), pages 341-365, December.
- Sirchenko Andrey, 2008. "Modeling monetary policy in real time:Does discreteness matter?," EERC Working Paper Series 08/07e, EERC Research Network, Russia and CIS.
- Small, Kenneth A, 1987. "A Discrete Choice Model for Ordered Alternatives," Econometrica, Econometric Society, vol. 55(2), pages 409-24, March.
When requesting a correction, please mention this item's handle: RePEc:nbp:nbpmis:148. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ewa Szymecka)
If references are entirely missing, you can add them using this form.