Working Paper: NBER ID: w7493
Authors: Roberto Rigobon
Abstract: In this paper, I develop a new identification method to solve the problem of simultaneous equations, based on heteroskedasticity of the structural shocks. I show that if the heteroskedasticity can be described as a two-regime process, then the system is just identified under relatively weak conditions. Identification is also discussed under more than two regimes, when the residuals exhibit ARCH behavior, and when there are aggregate shocks. This methodology is applied to measure contagion across sovereign bonds between Argentina and Mexico. The estimates of the simultaneous parameters are relatively to different definitions of the regimes.
Keywords: No keywords provided
JEL Codes: C30; F32; C10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| heteroskedasticity of structural shocks (C22) | identification of simultaneous equations (C30) |
| two-regime process (P30) | just identification of simultaneous equations (C30) |
| more than two regimes (P39) | identification of simultaneous equations (C30) |
| ARCH behavior in residuals (C22) | identification of simultaneous equations (C30) |
| aggregate shocks (E10) | identification of simultaneous equations (C30) |
| identification method (F55) | valid estimations of simultaneous parameters (C51) |
| identification (Y20) | accurate measurement of contagion effects (C92) |