Structural vector autoregressions with smooth transition in variances: The interaction between US monetary policy and the stock market

Helmut Lütkepohl and Aleksei Netésunajev

No 2014-031, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: In structural vector autoregressive analysis identifying the shocks of interest via heteroskedasticity has become a standard tool. Unfortunately, the approaches currently used for modelling heteroskedasticity all have drawbacks. For instance, assuming known dates for variance changes is often unrealistic while more exible models based on GARCH or Markov switching residuals are difficult to handle from a statistical and computational point of view. Therefore we propose a model based on a smooth change in variance that is flexible as well as relatively easy to estimate. The model is applied to a five-dimensional system of U.S. variables to explore the interaction between monetary policy and the stock market. It is found that previously used conventional identification schemes in this context are rejected by the data if heteroskedasticity is allowed for. Shocks identified via heteroskedasticity have a different economic interpretation than the shocks identified using conventional methods.

Keywords: Structural vector autoregressions; heteroskedasticity; smooth transition VAR models; identification via heteroskedasticity (search for similar items in EconPapers)
JEL-codes: C32 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/103811/1/788479016.pdf (application/pdf)

Related works:
Working Paper: Structural Vector Autoregressions with Smooth Transition in Variances: The Interaction between U.S. Monetary Policy and the Stock Market (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb649:sfb649dp2014-031

Access Statistics for this paper

More papers in SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().