Identification through Heteroskedasticity in One Lemma: Partial Identification, an Eigenvalue Construction, and a Caution on Rank Tests

George Milunovich

Papers from arXiv.org

Abstract: This teaching note unifies known results on identification through heteroskedasticity, under volatility regimes, GARCH, stochastic volatility and covariate-driven variances, in one lemma with a short linear-algebra proof. A shock is identified up to sign and labelling if and only if no other shock shares its variance path, and shocks that share a path are identified up to a rotation. The rows of the structural coefficient matrix solve one generalised eigenvalue problem that nests Rigobon's (2003) two-regime solution. Rank tests on second moments of the errors count at most linearly independent centred variance paths, not identified shocks. A simulation illustrates each point.

Date: 2026-10
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