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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • William H.Greene & Max Gillman & Mark N. Harris & Christopher Spencer, 2013. "The Tempered Ordered Probit (TOP) model with an application to monetary policy," Discussion Paper Series 2013_10, Department of Economics, Loughborough University, revised Sep 2013.
    • Handle: RePEc:lbo:lbowps:2013_10
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary policy committee; voting; discrete data; uncertainty; tempered equations.;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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