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Structural Volatility Impulse Response Analysis

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  • Matthias R Fengler
  • Jeannine Polivka

Abstract

We make three contributions to the volatility impulse response function (VIRF) developed by Hafner and Herwartz (2006). First, we derive its law for multivariate GARCH models of the BEKK type. Second, we present a structural embedding of the VIRF, leveraging recent advancements in the identification of multivariate generalized autoregressive conditional heteroskedasticity models. Third, we show how to endow the VIRF with a causal interpretation. We illustrate the merits of a structural VIRF analysis by investigating the impacts of historical and out-of-sample shock scenarios on the U.S. equity, government bond, and foreign exchange markets.

Suggested Citation

  • Matthias R Fengler & Jeannine Polivka, 2025. "Structural Volatility Impulse Response Analysis," Journal of Financial Econometrics, Oxford University Press, vol. 23(2), pages 951-971.
    • Handle: RePEc:oup:jfinec:v:23:y:2025:i:2:p:951-971.
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbae036
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    Cited by:

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    2. Hafner, Christian M. & Herwartz, Helmut, 2023. "Correlation impulse response functions," Finance Research Letters, Elsevier, vol. 57(C).

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    Keywords

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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