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Structural Volatility Impulse Response Analysis

Author

Listed:
  • Matthias R. Fengler

    (University of St. Gallen - SEPS: Economics and Political Sciences; Swiss Finance Institute)

  • Jeannine Polivka

    (University of St. Gallen)

Abstract
We make three contributions to the volatility impulse response function (VIRF) developed by Hafner and Herwartz (2006). First, we derive its law for multivariate GARCH models of the BEKK type. Second, we present a structural embedding of the VIRF, leveraging recent advancements in the identification of MGARCH models. Third, we show how to endow the VIRF with a causal interpretation. We illustrate the merits of a structural VIRF analysis by investigating the impacts of historical and out-of-sample shock scenarios on the U.S. equity, government bond, and foreign exchange markets.

Suggested Citation

  • Matthias R. Fengler & Jeannine Polivka, 2024. "Structural Volatility Impulse Response Analysis," Swiss Finance Institute Research Paper Series 24-63, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2463
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    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5014458
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    More about this item

    Keywords

    causality in volatility; multivariate GARCH models; proxy identification; structural identification; volatility impulse response functions;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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