Structural Volatility Impulse Response Analysis

Matthias Fengler and Jeannine Polivka

Journal of Financial Econometrics, 2025, vol. 23, issue 2, 951-971

Abstract: We make three contributions to the volatility impulse response function (VIRF) developed by Hafner and Herwartz (2006). First, we derive its law for multivariate GARCH models of the BEKK type. Second, we present a structural embedding of the VIRF, leveraging recent advancements in the identification of multivariate generalized autoregressive conditional heteroskedasticity models. Third, we show how to endow the VIRF with a causal interpretation. We illustrate the merits of a structural VIRF analysis by investigating the impacts of historical and out-of-sample shock scenarios on the U.S. equity, government bond, and foreign exchange markets.

Keywords: causality in volatility; multivariate GARCH models; proxy identification; structural identification; volatility impulse response functions (search for similar items in EconPapers)
JEL-codes: C32 C58 G17 (search for similar items in EconPapers)
Date: 2025
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Related works:
Working Paper: Structural Volatility Impulse Response Analysis (2024)
Working Paper: Structural Volatility Impulse Response Analysis (2022)
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