|
on Discrete Choice Models |
| By: | Orla May; Merxe Tudela |
| Abstract: | Since the mid-1990s the volume of secured lending to households has expanded rapidly, both in absolute terms and in relation to household incomes. This paper examines the determinants of households' ability to service this stock of secured debt. It estimates a random effects probit model for the probability of households having mortgage payment problems. It is found that past experience of payment problems increases the probability that the household has difficulties servicing its secured debt today. At the household level, becoming unemployed, interest income gearing of 20% and above, high loan to value ratios and having a heavy burden of unsecured debt are all associated with a significantly higher probability of mortgage payment problems. Saving regularly and having unsecured debt which is not a problem are both associated with a significantly lower probability of mortgage payment problems. The only non-household-specific variable to have a significant effect is mortgage interest rates - the probability of payment problems increases with the level of mortgage interest rates. An aggregate measure of debt at risk is calculated. This has decreased between 1994 and 2002, as falls in the probability of mortgage payment problems have more than offset increases in the stock of mortgage debt outstanding. It is found that the fall in the probability of mortgage payment problems has been greatest among the most highly indebted households. |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:277&r=dcm |
| By: | Post, Erik (Department of Economics) |
| Abstract: | This paper sets up a simple model for interventions and interest rate setting assuming that the policy maker cares about deviations in inflation from a target level. Under a quadratic cost of interest rate adjustments and interventions the policy maker should use a combination of interest rate adjustment and interventions. According to the model interventions (purchases of foreign currency) will be negatively correlated with interest rate deviations from the steady state level but positively correlated with interest rate deviations pertaining to non-stabilizing motives or a binding zero lower bound. The model also predicts that interventions will be decreasing in inflation expectations and in the real exchange rate but increasing the expected interventions. Interventions are shown to be positively serially correlated if the policy maker cares about the future. Following the theoretical model closely two sets of regression results are presented using both Two Stage Least Squares and an Ordered Probit model. The empirical analysis uses daily intervention data for Australia, Japan and Sweden. Overall, the predictions of the model is supported in most dimensions indicating that interventions have been used in a way that is consistent with monetary policy considerations. |
| Keywords: | foreign exchange interventions; monetary policy; central banks |
| JEL: | E52 E58 F31 |
| Date: | 2006–09–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2006_021&r=dcm |
| By: | Jerome Adda (Institute for Fiscal Studies and University College London); Christian Dustmann (Institute for Fiscal Studies and University College London); Costas Meghir (Institute for Fiscal Studies and University College London); Jean-Marc Robin (Institute for Fiscal Studies and EUREQua, University of Paris 1) |
| Abstract: | We develop a dynamic discrete choice model of training choice, employment and wage growth, allowing for job mobility, in a world where wages depend on firm-worker matches, as well as experience and tenure and jobs take time to locate. We estimate this model on a large administrative panel data set which traces labour market transitions, mobility across firms and wages from the end of statutory schooling. We use the model to evaluate the life-cycle return to apprenticeship training and find that on average the costs outweigh the benefits; however for those who choose to train the returns are positive. We then use our model to consider the long-term lifecycle effects of two reforms: One is the introduction of an Earned Income Tax Credit in Germany, and the other is a reform to Unemployment Insurance. In both reforms we find very significant impacts of the policy on training choices and on the value of realised matches, demonstrating the importance of considering such longer term implications. |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:06/16&r=dcm |
| By: | James J. Heckman (University of Chicago, University College Dublin, American Bar Foundation and IZA Bonn); Sergio Urzua (University of Chicago); Edward Vytlacil (Columbia University) |
| Abstract: | This paper examines the properties of instrumental variables (IV) applied to models with essential heterogeneity, that is, models where responses to interventions are heterogeneous and agents adopt treatments (participate in programs) with at least partial knowledge of their idiosyncratic response. We analyze two-outcome and multiple-outcome models including ordered and unordered choice models. We allow for transition-specific and general instruments. We generalize previous analyses by developing weights for treatment effects for general instruments. We develop a simple test for the presence of essential heterogeneity. We note the asymmetry of the model of essential heterogeneity: outcomes of choices are heterogeneous in a general way; choices are not. When both choices and outcomes are permitted to be symmetrically heterogeneous, the method of IV breaks down for estimating treatment parameters. |
| Keywords: | unobserved heterogeneity, instrumental variables, treatment parameters, policy evaluation |
| JEL: | C31 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2320&r=dcm |
| By: | John K. Dagsvik (Statistics Norway) |
| Abstract: | This paper develops a theory of probabilistic models for risky choices. Part of this theory can be viewed as an extension of the expected utility theory to account for bounded rationality. One probabilistic version of the Archimedean Axiom and two versions of the Independence Axiom are proposed. In addition, additional axioms are proposed of which one is Luce’s Independence from Irrelevant Alternatives. It is demonstrated that different combinations of the axioms yield different characterizations of the probabilities for choosing the respective risky prospects. An interesting feature of the models developed is that they allow for violations of the expected utility theory known as the common consequence effect and the common ratio effect. |
| Keywords: | Random tastes; bounded rationality; independence from irrelevant alternatives; probabilistic choice among lotteries; Allais paradox. |
| JEL: | C25 D11 D81 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:465&r=dcm |
| By: | Francis Nathan Okurut (Department of Economics, University of Botswana) |
| Abstract: | This study specifically investigated the factors that influenced access by the poor and Blacks to credit in the segmented financial sector in South Africa, using income and expenditure survey data from 1995 and 2000. The study sheds light on the extent of financial sector deepening through household participation especially among the poor and Blacks, in the context of the fight against poverty. In this study, three types of credit were identified. Formal credit was defined to include debts from commercial banks (including mortgage finance and car loans), semi-formal credit included consumption credit (for household assets such as furniture and open accounts in retail stores), and informal credit specifically referred to debts from relatives and friends.Multinomial logit models and Heckman probit models with sample selection were used for analytical work. The results suggest that the poor and Blacks have limited access to the formal and semi-formal financial sectors. At the national level, access to bank credit is positively and significantly influenced by age, being male, household size, education level, household per capita expenditure and race (being Coloured, Indian or White). Being poor has a negative and significant effect on formal credit access. Semi-formal credit access is positively and significantly influenced by household size, per capita expenditure, provincial location (Eastern Cape, Northern Cape, Free State and North West) and being Coloured. The negative and significant factors in determining access to semi-formal credit include being male, rural location, being poor and being White. Informal credit access is negatively and significantly influenced by education level and race (being Coloured or White). Among the poor, access to bank credit is positively and significantly influenced by being male, provincial location (Western Cape, Gauteng and Mpumalanga) and being Coloured. Access to semi-formal credit is positively and significantly determined by household per capita expenditure, provincial location (Western Cape, Northern Cape, North West and Gauteng) and being Indian. Access to informal credit by the poor is positively and significantly influenced by provincial location (Kwazulu Natal and Gauteng). Within the black population, access to bank credit is positively and significantly influenced by age, being male, household per capita expenditure and education level. Semi-formal credit access by Blacks is positively and significantly influenced by household size, household per capita expenditure, education level and provincial location (Eastern Cape, Northern Cape, Free State and North West). However being male, poor and located in a rural area negatively affected access to semi-formal credit by Blacks. Informal credit access by Blacks is negatively influenced by education level, but positively influenced by being located in the Western and Eastern Cape. These findings confirm that improving access to organized credit markets (i.e formal and semi-formal credit markets) by the poor and Blacks, remains important in the fight against poverty. |
| Keywords: | credit, poverty, South Africa |
| JEL: | N27 D14 G2 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:sza:wpaper:wpapers27&r=dcm |