Identification through heteroskedasticity: a likelihood-based approach

Emanuele Bacchiocchi

Departmental Working Papers from Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano

Abstract: In this paper we show how the analysis of identification of simultaneous equations systems with different volatility regimes can be addressed in a conventional likelihood-based setup, generalizing previous works in different directions. We discuss general conditions for identification and one of the results shows that an adequate number of different levels of heteroskedasticity is sufficient to identify the parameters of the structural form without the inclusion of any kind of restriction. A FullInformation Maximum Likelihood (FIML) algorithm is discussed and the small sample performances of estimators and tests on the parameters are studied through Monte Carlo simulations. Finally, this methodology is used to investigate the relationships between sovereign bond yields for some highly indebted EU countries.

Keywords: Simultaneous equations model; Heteroskedasticity; Identification; FIML; Contagion (search for similar items in EconPapers)
JEL-codes: C01 C13 C30 C51 (search for similar items in EconPapers)
Date: 2011-09-07
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