The decisions to reduce, leave unchanged, or increase a choice variable (such as policy interest rates) are often characterized by abundant status quo outcomes that can be generated by different processes. The decreases and increases may also be driven by distinct decision-making paths. Neither conventional nor zero-inflated models for ordinal responses adequately address these issues. This paper develops a flexible endogenously switching model with three latent regimes, which create separate processes for interest rate hikes and cuts and overlap at a no-change outcome, generating three different types of status quo decisions. The model is not only favored by statistical tests but also produces economically more meaningful inference with respect to the existing models, which deliver biased estimates in the simulations.
SNDE recognizes that advances in statistics and dynamical systems theory can increase our understanding of economic and financial markets. The journal seeks both theoretical and applied papers that characterize and motivate nonlinear phenomena. Researchers are required to assist replication of empirical results by providing copies of data and programs online. Algorithms and rapid communications are also published.