Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/222542
Authors: 
Hartwig, Benny
Year of Publication: 
2020
Series/Report no.: 
Bundesbank Discussion Paper No. 34/2020
Abstract: 
This paper investigates how the ordering of variables affects properties of the time-varying covariance matrix in the Cholesky multivariate stochastic volatility model.It establishes that systematically different dynamic restrictions are imposed whenthe ratio of volatilities is time-varying. Simulations demonstrate that estimated co-variance matrices become more divergent when volatility clusters idiosyncratically.It is illustrated that this property is important for empirical applications. Specifically, alternative estimates on the evolution of U.S. systematic monetary policy andinflation-gap persistence indicate that conclusions may critically hinge on a selectedordering of variables. The dynamic correlation Cholesky multivariate stochasticvolatility model is proposed as a robust alternative.
Subjects: 
Model uncertainty
Multivariate stochastic volatility
Dynamic correlations
Monetary policy
Structural VAR
JEL: 
C11
C32
E32
E52
ISBN: 
978-3-95729-730-3
Document Type: 
Working Paper

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