nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2017‒12‒18
two papers chosen by
Edoardo Marcucci
Università degli studi Roma Tre

  1. An endogenous regime-switching model of ordered choice with an application to federal funds rate target. By Andrei A. Sirchenko
  2. Determinants of residential heating system choice: an analysis of Irish households By Curtis, John; McCoy, Daire; Aravena Novielli, Claudia

  1. By: Andrei A. Sirchenko
    Abstract: This paper introduces a class of ordered probit models with endogenous switching among N latent regimes and possibly endogenous explanatory variables. The paper contributes to and bridges two strands of microeconometric literature. First, it extends endogenous switching regressions to models of ordered choice with N unknown regimes. Second, it generalizes the existing zero-inflated ordered probit models to make them suitable for ordinal data that take on negative, zero and positive values and characterized by abundant and heterogeneous zero observations. From a macroeconomic perspective, it is the first attempt to implement regime switching and accommodate endogenous regressors in discrete-choice monetary policy rules. Recurring oscillating regime switches in the three regimes evolving endogenously in response to the state of economy are detected during a relatively stable policy period such as the Greenspan era. The Monte Carlo experiments and an application to the federal funds rate target demonstrate that ignoring endogeneity and regime-switching environment can lead to seriously distorted statistical inference. In the simulations, the new models perform well in small samples. In the application, they not only have better in-sample fit for the Greenspan era than the existing models but also forecast better out of sample for the entire Bernanke era, correctly predicting 91 percent of policy decisions.
    JEL: C34 C35 C36 E52
    Date: 2017–11–19
  2. By: Curtis, John; McCoy, Daire; Aravena Novielli, Claudia
    Abstract: The paper uses a multinomial logit model to study the determinants of domestic space heating systems in Ireland. Nine types of heating systems are considered, classified by fuel type (liquid, electric, gas and solids or combinations thereof). Heating system choice is modelled as a function of household socio-demographic variables and dwelling attributes; information on occupants’ knowledge of fuel costs, energy efficiency, and fuel emissions; as well as actual environmental behaviours. Key findings are that environmental concerns, including knowledge of fuel costs, emissions, or engagement in environmentally sustainable behaviours, are not an important determining factor in heating system choice across the majority of households. No clear trend emerges on the likelihood of specific heating systems being associated with a broad range of socio-demographic variables, including age, income, and working status. Certain building attributes are associated with specific heating system types, with analyses segregated by new build properties, properties with their original heating system, and also by tenure type (i.e. mortgage, rental, etc.). For example, we find public sector landlords’ properties have a substantially higher likelihood that the heating system is solid fuel based compared to other heating systems, which identifies an obvious opportunity to target de-carbonisation of heating systems.
    Date: 2017–12

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