Multimodality and the GARCH Likelihood

Jurgen A. Doornik and Marius Ooms
Authors registered in the RePEc Author Service: Jurgen A. Doornik and Marius Ooms

No 76, Computing in Economics and Finance 2001 from Society for Computational Economics

Abstract: We investigate several aspects of GARCH(p,q) models which are relevant for empirical applications. In particular, we note that the inclusion of a dummy variable as regressor can lead to multimodality in the GARCH likelihood. This makes standard inference on the estimated coefficient impossible. Next, we investigate the implementation of different restrictions on the GARCH parameter space. We present a small refinement to the Nelson-Cao (1992) conditions for a GARCH(2,q) model, and show how these can be implemented by parameter transformations. We argue that these conditions are also too restrictive, and consider restrictions which are formulated in terms of the unconditional variance. These are easier to work with and understand. Finally, we show that multimodality is a real concern for models of the pounds exchange rate, and should be taken account of, especially when p >= 2.

Keywords: GARCH; EGARCH; multimodality; dummy variable; parameter space (search for similar items in EconPapers)
JEL-codes: C22 (search for similar items in EconPapers)
Date: 2001-04-01
References: Add references at CitEc
Citations: View citations in EconPapers (1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: Multimodality and the GARCH Likelihood (2000)
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: https://EconPapers.repec.org/RePEc:sce:scecf1:76

Access Statistics for this paper

More papers in Computing in Economics and Finance 2001 from Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().