Identification Through Heteroskedasticity: Measuring "Contagion: Betweenargentinean and Mexican Sovereign Bonds
34 Pages Posted: 30 Mar 2000 Last revised: 24 Dec 2022
Date Written: January 2000
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.
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