The Liquidity Effect: Testing Identification Conditions Under Time-Varying Conditional Volatility
AbstractIn the recent SVAR literature, the liquidity effect has been studied by imposing a variety of identifying restrictions required under the assumption that the SVAR fundamental disturbances are homoscedastic. Using typical SVAR processes, we first show that this assumption is not supported by the data and that the SVAR residuals are not characterized by common conditional scedastic structures. Under time-varying conditional volatility of residuals, we are then able to formally test typical sets of restrictions that have been imposed in previous studies. Our results indicate that to obtain a well characterized liquidity effect, one must measure monetary policy shocks as innovations in the Federal funds rate. This paper is available at ftp://crefe.dse.uqam.ca/pub/cahiers/cah40.ps Additional tables are at ftp://crefe.dse.uqam.ca/pub/cahiers/cah40t.ps The whole WP list is at http://www.er.uqam.ca/nobel/crefe/cahiers.html
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Bibliographic InfoPaper provided by EconWPA in its series Econometrics with number 9607001.
Length: 7 pages
Date of creation: 03 Jul 1996
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Note: 25+7 pages, 2 Postscript files
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- Michel Normandin & Louis Phaneuf, 1996. "The Liquidity Effect: Testing Identification Conditions Under Time-Varying Conditional Volatility," Cahiers de recherche CREFE / CREFE Working Papers 40, CREFE, Université du Québec à Montréal.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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