This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Identification and Estimation in an Incoherent Model of Contagion

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Massacci, D.
Abstract

This paper deals with the issues of identification and estimation in the canonical model of contagion advanced in Pesaran and Pick (2007). The model is a two-equation nonlinear simultaneous equations system with endogenous dummy variables; it also represents an extension of univariate threshold autoregressive (TAR) models to a simultaneous equations framework. For a range of economic fundamentals, the model produces multiple (i.e. two) equilibria, and the choice of the equilibrium is modelled as being driven by a Bernoulli process; further, the presence of multiple equilibria leads to an incoherent econometric specification. The coherency issue is then reflected in the analytical expression for the likelihood function derived in the paper. It is proved that neither identification nor Full Information Maximum Likelihood (FIML) estimation of the model require knowledge of the Bernoulli process driving the solution choice in the multiple equilibria region. Monte Carlo experiments show that the FIML estimator performs better than the GIVE estimators proposed in Pesaran and Pick (2007). Finally, an empirical illustration based on stock market returns is provided.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.econ.cam.ac.uk/dae/repec/cam/pdf/cwpe0744.pdf
File Format: application/pdf
File Function: Working Paper Version
Download Restriction: no

Publisher Info
Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0744.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 24
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:cam:camdae:0744

Contact details of provider:
Web page: http://www.econ.cam.ac.uk/index.htm

For technical questions regarding this item, or to correct its listing, contact: (Howard Cobb).

Related research
Keywords: Contagion Identification Estimation Coherent Models Threshold Models.

Find related papers by JEL classification:
C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - General
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Favero, Carlo A. & Giavazzi, Francesco, 2002. "Is the international propagation of financial shocks non-linear?: Evidence from the ERM," Journal of International Economics, Elsevier, vol. 57(1), pages 231-246, June. [Downloadable!] (restricted)
  2. Pesaran, M Hashem & Timmermann, Allan, 1992. "A Simple Nonparametric Test of Predictive Performance," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 561-65, October.
    Other versions:
  3. Girton, Lance & Roper, Don, 1977. "A Monetary Model of Exchange Market Pressure Applied to the Postwar Canadian Experience," American Economic Review, American Economic Association, vol. 67(4), pages 537-48, September. [Downloadable!] (restricted)
  4. Bresnahan, Timothy F & Reiss, Peter C, 1990. "Entry in Monopoly Markets," Review of Economic Studies, Blackwell Publishing, vol. 57(4), pages 531-53, October. [Downloadable!] (restricted)
  5. Amemiya, Takeshi, 1977. "The Maximum Likelihood and the Nonlinear Three-Stage Least Squares Estimator in the General Nonlinear Simultaneous Equation Model," Econometrica, Econometric Society, vol. 45(4), pages 955-68, May. [Downloadable!] (restricted)
  6. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Blackwell Publishing, vol. 98(4), pages 463-84, December.
  7. Elie Tamer, 2003. "Incomplete Simultaneous Discrete Response Model with Multiple Equilibria," Review of Economic Studies, Blackwell Publishing, vol. 70(1), pages 147-165, January.
  8. King, Mervyn A & Wadhwani, Sushil, 1990. "Transmission of Volatility between Stock Markets," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 3(1), pages 5-33. [Downloadable!] (restricted)
    Other versions:
  9. Rigobon, Roberto, 2003. "On the measurement of the international propagation of shocks: is the transmission stable?," Journal of International Economics, Elsevier, vol. 61(2), pages 261-283, December. [Downloadable!] (restricted)
  10. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October. [Downloadable!] (restricted)
    Other versions:
  11. Newey, Whitney K, 1990. "Efficient Instrumental Variables Estimation of Nonlinear Models," Econometrica, Econometric Society, vol. 58(4), pages 809-37, July. [Downloadable!] (restricted)
  12. Roberto Rigobon, 2001. "Contagion: How to Measure It?," NBER Working Papers 8118, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Marcel Fratzscher, 2003. "On currency crises and contagion," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(2), pages 109-129. [Downloadable!]
    Other versions:
  14. Blackburn, Keith & Sola, Martin, 1993. " Speculative Currency Attacks and Balance of Payments Crises," Journal of Economic Surveys, Blackwell Publishing, vol. 7(2), pages 119-44, June.
  15. Uma Moorthy & W. R. M. Perraudin & Manmohan S. Kumar, 2002. "Predicting Emerging Market Currency Crashes," IMF Working Papers 02/7, International Monetary Fund.
  16. Kooreman, Peter, 1994. "Estimation of Econometric Models of Some Discrete Games," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(3), pages 255-68, July-Sept. [Downloadable!] (restricted)
  17. Rangvid, Jesper, 2001. " Second Generation Models of Currency Crises," Journal of Economic Surveys, Blackwell Publishing, vol. 15(5), pages 613-46, December. [Downloadable!] (restricted)
  18. Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-47, August. [Downloadable!] (restricted)
  19. Donald W.K. Andrews & James H. Stock, 2005. "Inference with Weak Instruments," NBER Technical Working Papers 0313, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  20. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, 09. [Downloadable!] (restricted)
  21. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-29, October.
  22. Heckman, James J, 1978. "Dummy Endogenous Variables in a Simultaneous Equation System," Econometrica, Econometric Society, vol. 46(4), pages 931-59, July. [Downloadable!] (restricted)
    Other versions:
  23. Caner, Mehmet & Hansen, Bruce E., 2004. "Instrumental Variable Estimation Of A Threshold Model," Econometric Theory, Cambridge University Press, vol. 20(05), pages 813-843, October. [Downloadable!]
  24. Billio, Monica & Pelizzon, Loriana, 2003. "Contagion and interdependence in stock markets: Have they been misdiagnosed?," Journal of Economics and Business, Elsevier, vol. 55(5-6), pages 405-426. [Downloadable!] (restricted)
  25. Kruger, Mark & Osakwe, Patrick N. & Page, Jennifer, 1998. "Fundamentals, Contagion and Currency Crises: An Empirical Analysis," Working Papers 98-10, Bank of Canada. [Downloadable!]
  26. Martin, V. & Dungey & M., 2004. "Empirical Modelling of Contagion: A Review of Methodologies," Econometric Society 2004 Far Eastern Meetings 574, Econometric Society. [Downloadable!]
    Other versions:
  27. Martens, Martin & Poon, Ser-Huang, 2001. "Returns synchronization and daily correlation dynamics between international stock markets," Journal of Banking & Finance, Elsevier, vol. 25(10), pages 1805-1827, October. [Downloadable!] (restricted)
  28. Pesaran, M. Hashem & Pick, Andreas, 2007. "Econometric issues in the analysis of contagion," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1245-1277, April. [Downloadable!] (restricted)
    Other versions:
  29. Corsetti, Giancarlo & Pericoli, Marcello & Sbracia, Massimo, 2005. "'Some contagion, some interdependence': More pitfalls in tests of financial contagion," Journal of International Money and Finance, Elsevier, vol. 24(8), pages 1177-1199, December. [Downloadable!] (restricted)
    Other versions:
  30. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April. [Downloadable!] (restricted)
  31. Kee-Hong Bae & G. Andrew Karolyi & René M. Stulz, 2003. "A New Approach to Measuring Financial Contagion," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 16(3), pages 717-763, July. [Downloadable!] (restricted)
    Other versions:
  32. Jeanne, Olivier & Masson, Paul, 2000. "Currency crises, sunspots and Markov-switching regimes," Journal of International Economics, Elsevier, vol. 50(2), pages 327-350, April. [Downloadable!] (restricted)
    Other versions:
  33. Blundell, Richard & Smith, Richard J., 1994. "Coherency and estimation in simultaneous models with censored or qualitative dependent variables," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 355-373. [Downloadable!] (restricted)
  34. Marcello Pericoli & Massimo Sbracia, 2003. "A Primer on Financial Contagion," Journal of Economic Surveys, Blackwell Publishing, vol. 17(4), pages 571-608, 09. [Downloadable!] (restricted)
    Other versions:
  35. Gourieroux, C & Laffont, J J & Monfort, A, 1980. "Coherency Conditions in Simultaneous Linear Equation Models with Endogenous Switching Regimes," Econometrica, Econometric Society, vol. 48(3), pages 675-95, April. [Downloadable!] (restricted)
    Other versions:
Full references

Statistics
Access and download statistics

Did you know? Citation analysis on IDEAS includes online papers that are freely accessible and whose text could be automatically analyzed, currently about 130000 papers.

This page was last updated on 2008-6-30.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.