In this article we propose a multivariate dynamic probit model. Our model can be viewed as a nonlinear VAR model for the latent variables associated with correlated binary…
In this article we propose a multivariate dynamic probit model. Our model can be viewed as a nonlinear VAR model for the latent variables associated with correlated binary time-series data. To estimate it, we implement an exact maximum likelihood approach, hence providing a solution to the problem generally encountered in the formulation of multivariate probit models. Our framework allows us to study the predictive relationships among the binary processes under analysis. Finally, an empirical study of three financial crises is conducted.
We analyse the dynamics of social assistance benefit (SA) receipt among working-age adults in Britain between 1991 and 2005. The decline in the annual SA receipt rate was…
We analyse the dynamics of social assistance benefit (SA) receipt among working-age adults in Britain between 1991 and 2005. The decline in the annual SA receipt rate was driven by a decline in the SA entry rate rather than by the SA exit rate (which also declined). We examine the determinants of these trends using a multivariate dynamic random effects probit model of SA receipt probabilities applied to British Household Panel Survey data. We show how the model may be used to derive year-by-year predictions of aggregate SA entry, exit and receipt rates. The analysis highlights the importance of the decline in the unemployment rate over the period and other changes in the socio-economic environment including two reforms to the income maintenance system in the 1990s and also illustrates the effects of self-selection (‘creaming’) on observed and unobserved characteristics.
Recent research has found significant relationships between internet search volume and real estate markets. This paper aims to examine whether Google search volume data…
Recent research has found significant relationships between internet search volume and real estate markets. This paper aims to examine whether Google search volume data can serve as a leading sentiment indicator and are able to predict turning points in the US housing market. One of the main objectives is to find a model based on internet search interest that generates reliable real-time forecasts.
Starting from seven individual real-estate-related Google search volume indices, a multivariate probit model is derived by following a selection procedure. The best model is then tested for its in- and out-of-sample forecasting ability.
The results show that the model predicts the direction of monthly price changes correctly, with over 89 per cent in-sample and just above 88 per cent in one to four-month out-of-sample forecasts. The out-of-sample tests demonstrate that although the Google model is not always accurate in terms of timing, the signals are always correct when it comes to foreseeing an upcoming turning point. Thus, as signals are generated up to six months early, it functions as a satisfactory and timely indicator of future house price changes.
The results suggest that Google data can serve as an early market indicator and that the application of this data set in binary forecasting models can produce useful predictions of changes in upward and downward movements of US house prices, as measured by the Case–Shiller 20-City House Price Index. This implies that real estate forecasters, economists and policymakers should consider incorporating this free and very current data set into their market forecasts or when performing plausibility checks for future investment decisions.
This is the first paper to apply Google search query data as a sentiment indicator in binary forecasting models to predict turning points in the housing market.
We examine the roles of sample initial conditions and unobserved individual effects in consistent estimation of the dynamic binary response panel data model. Different…
We examine the roles of sample initial conditions and unobserved individual effects in consistent estimation of the dynamic binary response panel data model. Different specifications of the model are estimated using female welfare and labor force participation data from the Survey of Income and Program Participation. These include alternative random effects (RE) models, in which the conditional distributions of both the unobserved heterogeneity and the initial conditions are specified, and fixed effects (FE) conditional logit models that make no assumptions on either distribution. There are several findings. First, the hypothesis that the sample initial conditions are exogenous is rejected by both samples. Misspecification of the initial conditions results in drastically overstated estimates of the state dependence and understated estimates of the short- and long-run effects of children on labor force participation. The FE conditional logit estimates are similar to the estimates from the RE model that is flexible with respect to both the initial conditions and the correlation between the unobserved heterogeneity and the covariates. For female labor force participation, there is evidence that fertility choices are correlated with both unobserved heterogeneity and pre-sample participation histories.
In this paper, we consider the analysis of models for univariate and multivariate ordinal outcomes in the context of the latent variable inferential framework of Albert…
In this paper, we consider the analysis of models for univariate and multivariate ordinal outcomes in the context of the latent variable inferential framework of Albert and Chib (1993). We review several alternative modeling and identification schemes and evaluate how each aids or hampers estimation by Markov chain Monte Carlo simulation methods. For each identification scheme we also discuss the question of model comparison by marginal likelihoods and Bayes factors. In addition, we develop a simulation-based framework for analyzing covariate effects that can provide interpretability of the results despite the nonlinearities in the model and the different identification restrictions that can be implemented. The methods are employed to analyze problems in labor economics (educational attainment), political economy (voter opinions), and health economics (consumers’ reliance on alternative sources of medical information).
We propose a generic algorithm for numerically accurate likelihood evaluation of a broad class of spatial models characterized by a high-dimensional latent Gaussian…
We propose a generic algorithm for numerically accurate likelihood evaluation of a broad class of spatial models characterized by a high-dimensional latent Gaussian process and non-Gaussian response variables. The class of models under consideration includes specifications for discrete choices, event counts and limited-dependent variables (truncation, censoring, and sample selection) among others. Our algorithm relies upon a novel implementation of efficient importance sampling (EIS) specifically designed to exploit typical sparsity of high-dimensional spatial precision (or covariance) matrices. It is numerically very accurate and computationally feasible even for very high-dimensional latent processes. Thus, maximum likelihood (ML) estimation of high-dimensional non-Gaussian spatial models, hitherto considered to be computationally prohibitive, becomes feasible. We illustrate our approach with ML estimation of a spatial probit for US presidential voting decisions and spatial count data models (Poisson and Negbin) for firm location choices.
This chapter develops a framework for quantile regression in binary longitudinal data settings. A novel Markov chain Monte Carlo (MCMC) method is designed to fit the model…
This chapter develops a framework for quantile regression in binary longitudinal data settings. A novel Markov chain Monte Carlo (MCMC) method is designed to fit the model and its computational efficiency is demonstrated in a simulation study. The proposed approach is flexible in that it can account for common and individual-specific parameters, as well as multivariate heterogeneity associated with several covariates. The methodology is applied to study female labor force participation and home ownership in the United States. The results offer new insights at the various quantiles, which are of interest to policymakers and researchers alike.
This paper proposes a probit regression with autocorrelated errors (PAR) to estimate the reaction function of monetary policy in Taiwan using newly constructed binary…
This paper proposes a probit regression with autocorrelated errors (PAR) to estimate the reaction function of monetary policy in Taiwan using newly constructed binary monetary indicators. We develop a practical sampling scheme via the Gibbs sampling algorithm with data augmentation to make posterior inference of the binary monetary policy reaction function. In contrast to the conventional approach, our method avoids the problem of multiple integrals by directly drawing values of latent variables from the relevant full conditional density along with all the other parameters. Empirical results show that the monetary authority responds to macroeconomic conditions asymmetrically. Specifically, in the high‐inflation regime, a contractionary monetary policy is implemented to reduce the inflation rate. Once inflation is under control, that is, in the low‐inflation regime, attention is paid to stimulating the growth of the economy.
This experimental study investigates the connotative (measured) meaning of the concept “auditor independence” within three audit engagement case contexts, including two…
This experimental study investigates the connotative (measured) meaning of the concept “auditor independence” within three audit engagement case contexts, including two acknowledged in the literature to represent significant potential threats to independence. The study’s research design utilises the measurement of meaning (semantic differential) framework originally proposed by Osgood et al. (1957). Findings indicate that research participants considered the concept of independence within a two factor cognitive structure comprising “emphasis” and “variability” dimensions. Participants’ connotations of independence varied along both these dimensions in response to the alternative experimental case scenarios. In addition, participants’ perceptions of the auditor’s independence in the three cases were systematically associated with the identified connotative meaning dimensions.