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Modeling the Riksbank Interest Rate: a Cross-nested Ordered-profit Approach

Student: Fakhretdinova Diana

Supervisor: Andrei Sirchenko

Faculty: International College of Economics and Finance

Educational Programme: Double degree programme in Economics of the NRU HSE and the University of London (Bachelor)

Final Grade: 9

Year of Graduation: 2016

The decision-making process of interest rate made by the Monetary policy committee is quite complicated and has become a topic for many recent researches. However, it is still a question what model for estimation should be used and what explanatory variables affect the decision of policymakers. In my thesis I will apply cross-nested ordered probit approach that was suggested by Andrei Sirchenko in 2015 to estimate responses of Riksbank’s MPC. I am going to use panel data analysis and to collect answers of every policymaker of Swedish central bank since 1999. The main aim of my thesis is to prove the efficiency and accuracy of CNOP model compared with ordinary ordered probit. I will test whether new model fits better using the level of significance of coefficients, information criteria, Vuong test, hit rates, adjusted-to-signal ratio and marginal effects.

Full text (added June 15, 2016)

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