Structural Constant Conditional Correlation
AbstractA small strand of recent literature is occupied with identifying simultaneity in multiple equation systems through autoregressive conditional heteroscedasticity. Since this approach assumes that the structural innovations are uncorrelated, any contemporaneous connection of the endogenous variables needs to be exclusively explained by mutual spillover effects. In contrast, this paper allows for instantaneous covariances, which become identifiable by imposing the constraint of structural constant conditional correlation (SCCC). In this, common driving forces can be modelled in addition to simultaneous transmission effects. The new methodology is applied to the Dow Jones and Nasdaq Composite indexes in a small empirical example, illuminating scope and functioning of the SCCC model.
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Bibliographic InfoPaper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2008-015.
Length: 14 pages
Date of creation: Jan 2008
Date of revision:
Simultaneity; Identification; EGARCH; CCC;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-02-09 (All new papers)
- NEP-ECM-2008-02-09 (Econometrics)
- NEP-ETS-2008-02-09 (Econometric Time Series)
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