Testing for Identification in SVAR-GARCH Models: Reconsidering the Impact of Monetary Shocks on Exchange Rates

30 Pages Posted: 12 Mar 2015

See all articles by Helmut Luetkepohl

Helmut Luetkepohl

German Institute for Economic Research (DIW Berlin)

George Milunovich

Macquarie University - Department of Economics; Macquarie University, Macquarie Business School

Date Written: February 2015

Abstract

Changes in residual volatility in vector autoregressive (VAR) models can be used for identifying structural shocks in a structural VAR analysis. Testable conditions are given for full identification for the case where the volatility changes can be modeled by a multivariate GARCH process. Formal statistical tests are presented for identification and their small sample properties are investigated via a Monte Carlo study. The tests are applied to investigate the validity of the identification conditions in a study of the effects of U.S. monetary policy on exchange rates. It is found that the data do not support full identification in most of the models considered, and the implied problems for the interpretation of the results are discussed.

Keywords: Structural vector autoregression, conditional heteroskedasticity, GARCH, identification via heteroskedasticity

JEL Classification: C32

Suggested Citation

Luetkepohl, Helmut and Milunovich, George, Testing for Identification in SVAR-GARCH Models: Reconsidering the Impact of Monetary Shocks on Exchange Rates (February 2015). DIW Berlin Discussion Paper No. 1455, Available at SSRN: https://ssrn.com/abstract=2576689 or http://dx.doi.org/10.2139/ssrn.2576689

Helmut Luetkepohl (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

George Milunovich

Macquarie University - Department of Economics ( email )

Sydney NSW 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
96
Abstract Views
447
rank
296,069
PlumX Metrics