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Identifying structural shocks to volatility through a proxy-MGARCH model

Matthias Fengler () and Jeannine Polivka

No 2103, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: We extend the classical MGARCH specification for volatility modeling by developing a structural MGARCH model targeting identification of shocks and volatility spillovers in a speculative return system. Similarly to the proxy-sVAR framework, we work with auxiliary proxy variables constructed from news-related measures to identify the underlying shock system. We achieve full identification with multiple proxies by chaining Givens rotations. In an empirical application, we identify an equity, bond and currency shock. We study the volatility spillovers implied by these labelled structural shocks. Our analysis shows that symmetric spillover regimes are rejected.

Keywords: Givens rotations; identification; news-based measures; proxy-MGARCH; shock labelling; structural innovations; volatility spillovers (search for similar items in EconPapers)
JEL-codes: C32 C51 C58 G12 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2021-04, Revised 2021-05
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-ore and nep-rmg
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