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In the Nick of Time: A Heteroskedastic SVAR Model and Its Application to the Crude Oil Futures Market

Hang Sun, J. Bos and Zhuo Li
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Hang Sun: Finance
Zhuo Li: wuhan university

No 19, Research Memorandum from Maastricht University, Graduate School of Business and Economics (GSBE)

Abstract: Many economic analyses revolve around the identification of shocks. However, this becomes difficult if we do not have enough information, for example because we do not observe the underlying process at a high enough frequency. As a result, if the response of one variable to a shock to another takes place `in the nick of time' this shock remains unidentified. We introduce a structural vector-autoregression model with Markov-switching heteroskedasticity in the data generating process that allows us to study instantaneous impulse-response relationships with the proper selection of a supporting `catalyst', which can be easier to find than an instrumental variable.

Keywords: SVAR; Identification; Markov-switching; Commodity prices; Index Trading (search for similar items in EconPapers)
JEL-codes: G13 C32 Q02 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ore
Date: 2017-08-31
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