Choosing Between Different Time‐Varying Volatility Models for Structural Vector Autoregressive Analysis

Helmut Lütkepohl and Thore Schlaak

Oxford Bulletin of Economics and Statistics, 2018, vol. 80, issue 4, 715-735

Abstract: The performance of information criteria and tests for residual heteroscedasticity for choosing between different models for time‐varying volatility in the context of structural vector autoregressive analysis is investigated. Although it can be difficult to find the true volatility model with the selection criteria, using them is recommended because they can reduce the mean squared error of impulse response estimates substantially relative to a model that is chosen arbitrarily based on the personal preferences of a researcher. Heteroscedasticity tests are found to be useful tools for deciding whether time‐varying volatility is present but do not discriminate well between different types of volatility changes. The selection methods are illustrated by specifying a model for the global market for crude oil.

Date: 2018
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https://doi.org/10.1111/obes.12238

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Journal Article: Choosing Between Different Time-Varying Volatility Models for Structural Vector Autoregressive Analysis (2018)
Working Paper: Choosing between Different Time-Varying Volatility Models for Structural Vector Autoregressive Analysis (2017)
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