The Liquidity Effect: Testing Identification Conditions Under Time-Varying Conditional Volatility

Michel Normandin () and Louis Phaneuf ()

No 40, Cahiers de recherche CREFE / CREFE Working Papers from CREFE, Université du Québec à Montréal

Abstract: In the recent SVAR literature, the liquidity effect has been studied by imposing a variety of identifying restrictions required under the assumption that the SVAR fundamental disturbances are homoscedastic. Using typical SVAR processes, we first show that this assumption is not supported by the data and that the SVAR residuals are not characterized by common conditional scedastic structures. Under time-varying conditional volatility of residuals, we are then able to formally test typical sets of restrictions that have been imposed in previous studies. Our results indicate that to obtain a well characterized liquidity effect, one must measure monetary policy shocks as innovations in the Federal funds rate.

Keywords: conditional heteroskedasticity; structural vector autoregressive process; recursive system; simultaneous system; short-run elasticities; dynamic responses (search for similar items in EconPapers)
JEL-codes: C32 E52 (search for similar items in EconPapers)
Date: 1996-05
Note: for figures and tables, email author
View list of references

Downloads: (external link)
http://www.unites.uqam.ca/eco/CREFE/cahiers/cah40.ps Main text (application/postscript)
http://www.unites.uqam.ca/eco/CREFE/cahiers/cah40.pdf Main text (application/pdf)

Related works:
Working Paper: The Liquidity Effect: Testing Identification Conditions Under Time-Varying Conditional Volatility (1996)
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: http://EconPapers.repec.org/RePEc:cre:crefwp:40

Access Statistics for this paper

More papers in Cahiers de recherche CREFE / CREFE Working Papers from CREFE, Université du Québec à Montréal
Address: P.O. Box 8888, Downtown Station, Montreal (Canada) Quebec, H3C 3P8
Contact information at EDIRC.
Series data maintained by Stéphane Pallage ().