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Identification Through Heteroskedasticity

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  • Roberto Rigobon

    (Sloan School of Management, MIT, and NBER)

Abstract

This paper develops a method for solving the identification problem that arises in simultaneous-equation models. It is based on the heteroskedasticity of the structural shocks. For simplicity, I consider heteroskedasticity that can be described as a two-regime process and show that the system is just identified. I discuss identification under general conditions, such as more than two regimes, when common unobservable shocks exist, and situations in which the nature of the heteroskedasticity is misspecified. Finally, I use this methodology to measure the contemporaneous relationship between the returns on Argentinean, Brazilian, and Mexican sovereign bonds-a case in which standard identification methodologies do not apply. © 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
  • Handle: RePEc:tpr:restat:v:85:y:2003:i:4:p:777-792
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