IDEAS home Printed from https://ideas.repec.org/a/plo/pone00/0168967.html
   My bibliography  Save this article

Estimation of the Heteroskedastic Canonical Contagion Model with Instrumental Variables

Author

Listed:
  • André L P Ribeiro
  • Luiz K Hotta

Abstract

Knowledge of contagion among economies is a relevant issue in economics. The canonical model of contagion is an alternative in this case. Given the existence of endogenous variables in the model, instrumental variables can be used to decrease the bias of the OLS estimator. In the presence of heteroskedastic disturbances this paper proposes the use of conditional volatilities as instruments. Simulation is used to show that the homoscedastic and heteroskedastic estimators which use them as instruments have small bias. These estimators are preferable in comparison with the OLS estimator and their asymptotic distribution can be used to construct confidence intervals.

Suggested Citation

  • André L P Ribeiro & Luiz K Hotta, 2016. "Estimation of the Heteroskedastic Canonical Contagion Model with Instrumental Variables," PLOS ONE, Public Library of Science, vol. 11(12), pages 1-13, December.
    • Handle: RePEc:plo:pone00:0168967
    DOI: 10.1371/journal.pone.0168967
    as

    Download full text from publisher

    File URL: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0168967
    Download Restriction: no
    File URL: https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0168967&type=printable
    Download Restriction: no
    File URL: https://libkey.io/10.1371/journal.pone.0168967?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Ribeiro, André L.P. & Hotta, Luiz K., 2013. "An analysis of contagion among Asian countries using the canonical model of contagion," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 62-69.
    3. Nelson, Charles R & Startz, Richard, 1990. "The Distribution of the Instrumental Variables Estimator and Its t-Ratio When the Instrument Is a Poor One," The Journal of Business, University of Chicago Press, vol. 63(1), pages 125-140, January.
    4. Hausman, Jerry & Stock, James H. & Yogo, Motohiro, 2005. "Asymptotic properties of the Hahn-Hausman test for weak-instruments," Economics Letters, Elsevier, vol. 89(3), pages 333-342, December.
    5. Cragg, John G. & Donald, Stephen G., 1993. "Testing Identifiability and Specification in Instrumental Variable Models," Econometric Theory, Cambridge University Press, vol. 9(2), pages 222-240, April.
    6. Jinyong Hahn & Jerry Hausman, 2002. "A New Specification Test for the Validity of Instrumental Variables," Econometrica, Econometric Society, vol. 70(1), pages 163-189, January.
    7. Milunovich George & Yang Minxian, 2013. "On Identifying Structural VAR Models via ARCH Effects," Journal of Time Series Econometrics, De Gruyter, vol. 5(2), pages 117-131, May.
    8. Metiu, Norbert, 2012. "Sovereign risk contagion in the Eurozone," Economics Letters, Elsevier, vol. 117(1), pages 35-38.
    9. Arthur Lewbel, 2012. "Using Heteroscedasticity to Identify and Estimate Mismeasured and Endogenous Regressor Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 30(1), pages 67-80.
    10. Andrews,Donald W. K. & Stock,James H. (ed.), 2005. "Identification and Inference for Econometric Models," Cambridge Books, Cambridge University Press, number 9780521844413.
    11. T. W. Anderson & Naoto Kunitomo & Yukitoshi Matsushita, 2008. "On the Asymptotic Optimality of the LIML Estimator with Possibly Many Instruments," CIRJE F-Series CIRJE-F-542, CIRJE, Faculty of Economics, University of Tokyo.
    12. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    13. Andreas Pick, 2007. "Financial contagion and tests using instrumental variables," DNB Working Papers 139, Netherlands Central Bank, Research Department.
    14. Anderson, T.W. & Kunitomo, Naoto & Matsushita, Yukitoshi, 2010. "On the asymptotic optimality of the LIML estimator with possibly many instruments," Journal of Econometrics, Elsevier, vol. 157(2), pages 191-204, August.
    15. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ribeiro, André L.P. & Hotta, Luiz K., 2013. "An analysis of contagion among Asian countries using the canonical model of contagion," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 62-69.
    2. Zhenhong Huang & Chen Wang & Jianfeng Yao, 2023. "Assessing the strength of many instruments with the first-stage F and Cragg-Donald statistics," Papers 2302.14423, arXiv.org.
    3. Mikusheva, Anna, 2013. "Survey on statistical inferences in weakly-identified instrumental variable models," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 29(1), pages 117-131.
    4. Inoue, Atsushi & Rossi, Barbara, 2011. "Testing for weak identification in possibly nonlinear models," Journal of Econometrics, Elsevier, vol. 161(2), pages 246-261, April.
    5. Danny Cohen Zada, 2007. "An Alternative Instrument for Private School Competition," Working Papers 0705, Ben-Gurion University of the Negev, Department of Economics.
    6. Vieira, Flávio & MacDonald, Ronald & Damasceno, Aderbal, 2012. "The role of institutions in cross-section income and panel data growth models: A deeper investigation on the weakness and proliferation of instruments," Journal of Comparative Economics, Elsevier, vol. 40(1), pages 127-140.
    7. Cohen-Zada, D., 2009. "An alternative instrument for private school competition," Economics of Education Review, Elsevier, vol. 28(1), pages 29-37, February.
    8. Dungey, Mardi & Milunovich, George & Thorp, Susan & Yang, Minxian, 2015. "Endogenous crisis dating and contagion using smooth transition structural GARCH," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 71-79.
    9. Guilhem Bascle, 2008. "Controlling for endogeneity with instrumental variables in strategic management research," Post-Print hal-00576795, HAL.
    10. Lee, Yoonseok & Okui, Ryo, 2012. "Hahn–Hausman test as a specification test," Journal of Econometrics, Elsevier, vol. 167(1), pages 133-139.
    11. Michal Kolesár & Raj Chetty & John Friedman & Edward Glaeser & Guido W. Imbens, 2015. "Identification and Inference With Many Invalid Instruments," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 33(4), pages 474-484, October.
    12. Faqin Lin & Ermias O. Weldemicael & Xiaosong Wang, 2017. "Export sophistication increases income in sub-Saharan Africa: evidence from 1981–2000," Empirical Economics, Springer, vol. 52(4), pages 1627-1649, June.
    13. Dufour, Jean-Marie & Taamouti, Mohamed, 2007. "Further results on projection-based inference in IV regressions with weak, collinear or missing instruments," Journal of Econometrics, Elsevier, vol. 139(1), pages 133-153, July.
    14. Festic, Mejra & Kavkler, Alenka & Repina, Sebastijan, 2011. "The macroeconomic sources of systemic risk in the banking sectors of five new EU member states," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 310-322, February.
    15. Zhenhong Huang & Chen Wang & Jianfeng Yao, 2023. "A specification test for the strength of instrumental variables," Papers 2302.14396, arXiv.org.
    16. Arthur Lewbel, 2019. "The Identification Zoo: Meanings of Identification in Econometrics," Journal of Economic Literature, American Economic Association, vol. 57(4), pages 835-903, December.
    17. Bhatt, Vipul & Kishor, Kundan & Marfatia, Hardik, 2017. "Estimating excess sensitivity and habit persistence in consumption using Greenbook forecast as an instrument," MPRA Paper 79748, University Library of Munich, Germany.
    18. Hirsch, Patrick & Köhler, Ekkehard A. & Feld, Lars P. & Thomas, Tobias, 2020. ""Whatever it takes!": How tonality of TV-news affects government bond yield spreads during crises," Freiburg Discussion Papers on Constitutional Economics 20/9, Walter Eucken Institut e.V..
    19. Anderson, T.W. & Kunitomo, Naoto & Matsushita, Yukitoshi, 2011. "On finite sample properties of alternative estimators of coefficients in a structural equation with many instruments," Journal of Econometrics, Elsevier, vol. 165(1), pages 58-69.
    20. Okui, Ryo, 2011. "Instrumental variable estimation in the presence of many moment conditions," Journal of Econometrics, Elsevier, vol. 165(1), pages 70-86.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:plo:pone00:0168967. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.