Identification Through Heteroskedasticity

This paper develops a method for solving the identification problem that arises in simultaneous-equation models. It is based on the heteroskedasticity of the structural shocks. For simplicity, I consider heteroskedasticity that can be described as a two-regime process and show that the system is just identified. I discuss identification under general conditions, such as more than two regimes, when common unobservable shocks exist, and situations in which the nature of the heteroskedasticity is misspecified. Finally, I use this methodology to measure the contemporaneous relationship between the returns on Argentinean, Brazilian, and Mexican sovereign bondsa case in which standard identification methodologies do not apply.

[1]  Philip G. Wright,et al.  The tariff on animal and vegetable oils , 1928 .

[2]  Mico Loretan,et al.  Evaluating Correlation Breakdowns During Periods of Market Volatility , 2000 .

[3]  Gabriele Fiorentini,et al.  Identification, Estimation And Testing Of Conditionally Heteroskedastic Factor Models , 2001 .

[4]  Vance L. Martin,et al.  Contagion Across Financial Markets: An Empirical Assessment ∗ , 2001 .

[5]  Nicola Spagnolo,et al.  Testing For Contagion: A Conditional Correlation Analysis , 2005 .

[6]  R. Rigobón,et al.  No Contagion, Only Interdependence: Measuring Stock Market Co-Movements , 1999 .

[7]  M. Watson,et al.  Sources of Business Cycle Fluctuations , 1988, NBER Macroeconomics Annual.

[8]  Roberto Rigobon,et al.  Measuring the Reaction of Monetary Policy to the Stock Market , 2001 .

[9]  Gabriele Fiorentini,et al.  Identification, Estimation and Testing of Conditionally Heteroskedastic Factor Models , 2001 .

[10]  S. Edwards.  RATE VOLATILITY AND CONTAGION IN EMERGING MARKETS : Evidence from the 1990 s , 2000 .

[11]  D. A. Kenny,et al.  Correlation and Causation. , 1982 .

[12]  T. Haavelmo.  Methods of Measuring the Marginal Propensity to Consume , 1947 .

[13]  Sebastian Edwards,et al.  Interest Rate Volatility, Capital Controls, and Contagion , 1998 .

[14]  Enrique Sentana,et al.  Volatiltiy and Links between National Stock Markets , 1990 .

[15]  THE DYNAMIC EFFECTS OF AGGREGATE DEMAND AND AGGREGATE SUPPLY DISTURBANCES IN THE G-7 , 2022 .

[16]  Michael S. Gibson,et al.  Pitfalls in Tests for Changes in Correlations , 1997 .

[17]  G. Calvo,et al.  Contagion in Emerging Markets: When Wall Street is a carrier , 2004 .

[18]  Sebastian Edwards,et al.  Interest Rate Volatility and Contagion in Emerging Markets: Evidence from the 1990s , 2000 .

[19]  R. Rigobón,et al.  No Contagion, Only Interdependence: Measuring Stock Market Comovements , 2002 .

[20]  T. Rothenberg,et al.  Simultaneous Equations with Covariance Restrictions , 1989 .

[21]  F. Fisher,et al.  The Identification Problem in Econometrics. , 1967 .

[22]  Guglielmo Maria Caporale,et al.  Monetary Policy and the Exchange Rate During the Asian Crisis: Identification Through Heteroscedasticity , 2003 .