The RATS Software Forum

Dear Tom,

I am estimating a bivariate BEKK-model which includes a dummy variable in the VCV of coefficients to check any shift contagion between two markets. More specifically, I would like to change a21 => (a21+a21d*D) and b21=>(b21+b21d*D), for example. Is there any way to put those addational restrictions into Rats program? Any comment will be appreciated!

Respectfully,
Jongrim

Dummies or other XREGRESSORS only enter into the variance intercept in GARCH(MV=BEKK). If you want the GARCH coefficients to shift, you'll need to estimate that using MAXIMIZE.

Hi. I was including an independent variable (not a dummy variable) in the variance equations of a BEKK model; Tom, do I understand properly that the coefficients on the independent variable is essentially only shifting the constant terms in each equation?

Thanks

Yes. It makes the "constant" in the BEKK (C+Dx(t))'(C+Dx(t)) where both C and D are lower triangular.

thanks.