On Identifying Structural VAR Models via ARCH Effects

George Milunovich 1  and Minxian Yang 2
  • 1 Macquarie University, North Ryde, NSW, 2109, Australia
  • 2 School of Economics, University of New South Wales, Kensington, NSW, 2052, Australia
George Milunovich and Minxian Yang

Abstract: We consider the local identification of parameters in structural VAR models with ARCH type errors. By establishing a mapping between the structural and reduced-form models, we provide a set of sufficient conditions for the joint identification of all parameters. Under these conditions, as the structural parameters are identified, various restrictions on the parameters can be tested in a standard manner. For example, the significance test for the ARCH effect in the usual GARCH formulation for a structural shock does not suffer the complications caused by a lack of identification encountered in univariate GARCH models.

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