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Structural Vector Autoregressions: Checking Identifying Long-run Restrictions via Heteroskedasticity

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  • Helmut Lütkepohl
  • Anton Velinov

Abstract

Long-run restrictions have been used extensively for identifying structural shocks in vector autoregressive (VAR) analysis. Such restrictions are typically just-identifying but can be checked by utilizing changes in volatility. This paper reviews and contrasts the volatility models that have been used for this purpose. Three main approaches have been used, exogenously generated changes in the unconditional residual covariance matrix, changing volatility modelled by a Markov switching mechanism and multivariate generalized autoregressive conditional heteroskedasticity (GARCH) models. Using changes in volatility for checking long-run identifying restrictions in structural VAR analysis is illustrated by reconsidering models for identifying fundamental components of stock prices.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.435720.de/dp1356.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1356.

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Length: 28 p.
Date of creation: 2014
Date of revision:
Handle: RePEc:diw:diwwpp:dp1356

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Keywords: Vector autoregression; heteroskedasticity; vector GARCH; conditional heteroskedasticity; Markov switching model;

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Cited by:
  1. Anton Velinov & Wenjuan Chen, 2014. "Are There Bubbles in Stock Prices? Testing for Fundamental Shocks," Discussion Papers of DIW Berlin 1375, DIW Berlin, German Institute for Economic Research.

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