Identification Through Heteroskedasticity
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- 1 November 2003
- journal article
- Published by MIT Press in The Review of Economics and Statistics
- Vol. 85 (4) , 777-792
- https://doi.org/10.1162/003465303772815727
Abstract
This paper develops a method for solving the identification problem that arises in simultaneous-equation models. It is based on the heteroskedasticity of the structural shocks. For simplicity, I consider heteroskedasticity that can be described as a two-regime process and show that the system is just identified. I discuss identification under general conditions, such as more than two regimes, when common unobservable shocks exist, and situations in which the nature of the heteroskedasticity is misspecified. Finally, I use this methodology to measure the contemporaneous relationship between the returns on Argentinean, Brazilian, and Mexican sovereign bonds-a case in which standard identification methodologies do not apply.Keywords
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