GARCH-Based Identification and Estimation of Triangular Systems GARCH-Based Identification and Estimation of Triangular Systems

By Todd Prono

Diagonal GARCH is shown to support identification of the triangular system and is argued as a higher moment analog to traditional exclusion restrictions used for determining suitable instruments. The estimator for this result is ML in the case where a distribution for the GARCH process is known and GMM otherwise. For the GMM estimator, an alternative weighting matrix is proposed.

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