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On the Identification of Interdependence and Contagion of Financial Crises

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  • Emanuele BACCHIOCCHI

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Abstract

In this paper we propose a new framework for modeling heteroskedastic structural vector autoregressions. Although it is general enough to find potential applications in many empirical economic fields, it reveals to be well suited in the distinction between interdependence and contagion in the literature related to the transmission of financial crises. The identification of the structural parameters is obtained by exploiting the heteroskedasticity in the data, naturally arising during crisis periods. More precisely we provide identification conditions when both heteroskedasticity and traditional restrictions on the parameters are jointly considered. Finally, this methodology is used to investigate the relationships between sovereign bond yields for some highly indebted EU countries.

Suggested Citation

  • Emanuele BACCHIOCCHI, 2015. "On the Identification of Interdependence and Contagion of Financial Crises," Departmental Working Papers 2015-12, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2015-12
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    References listed on IDEAS

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    More about this item

    Keywords

    Heteroskedasticity; Identification; Interdependence; Contagion; Highly Indebted EU Countries; Financial Crisis;

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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