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A regression discontinuity design for categorical ordered running variables with an application to central bank purchases of corporate bonds

Author

Listed:
  • Fan Li

    (Duke University)

  • Andrea Mercatanti

    (Bank of Italy)

  • Taneli Mäkinen

    (Bank of Italy)

  • Andrea Silvestrini

    (Bank of Italy)

Abstract

We propose a regression discontinuity design which can be employed when assignment to a treatment is determined by an ordinal variable. The proposal first requires an ordered probit model for the ordinal running variable to be estimated. The estimated probability of being assigned to a treatment is then adopted as a latent continuous running variable and used to identify a covariate-balanced subsample around the threshold. Assuming the local unconfoundedness of the treatment in the subsample, an estimate of the effect of the programme is obtained by employing a weighted estimator of the average treatment effect. We apply our methodology to estimate the causal effect of the corporate sector purchase programme of the European Central Bank on bond spreads.

Suggested Citation

  • Fan Li & Andrea Mercatanti & Taneli Mäkinen & Andrea Silvestrini, 2019. "A regression discontinuity design for categorical ordered running variables with an application to central bank purchases of corporate bonds," Temi di discussione (Economic working papers) 1213, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1213_19
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    References listed on IDEAS

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    Cited by:

    1. De Santis, Roberto A. & Zaghini, Andrea, 2021. "Unconventional monetary policy and corporate bond issuance," European Economic Review, Elsevier, vol. 135(C).
    2. Betz, Frank & De Santis, Roberto A., 2019. "ECB corporate QE and the loan supply to bank-dependent firms," Working Paper Series 2314, European Central Bank.
    3. Taneli Mäkinen & Fan Li & Andrea Mercatanti & Andrea Silvestrini, 2020. "Effects of eligibility for central bank purchases on corporate bond spreads," Temi di discussione (Economic working papers) 1300, Bank of Italy, Economic Research and International Relations Area.
    4. Zaghini, Andrea, 2021. "The Covid pandemic in the market: infected, immune and cured bonds," Working Paper Series 2563, European Central Bank.

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    More about this item

    Keywords

    program evaluation; regression discontinuity design; asset purchase programs;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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