The estimation output of DVEC model

[liyanan]

Hi,

The diagonal vec garch model should be resitriced A and G matrix (the parameter of ARCH and GARCH effect) to be diagonal, why EViews estimation output also report the off-diagonal elements?

Thanks

[trubador]

Those parameters do not correspond to the off-diagonal elements of the unrestricted system matrices. In the estimation process, calculations are carried out with Hadamard (element-by-element) product. Hence, this is just a difference in the notation. Normally, a bivariate VECH(1,1) model requires 27 parameters to be estimated, whereas diagonal VECH restricts it down to 9 parameters.

[liyanan]

Thank you very much. I also just figure it out when I read the Engle and Kroner (1995). the

Those parameters do not correspond to the off-diagonal elements of the unrestricted system matrices. In the estimation process, calculations are carried out with Hadamard (element-by-element) product. Hence, this is just a difference in the notation. Normally, a bivariate VECH(1,1) model requires 27 parameters to be estimated, whereas diagonal VECH restricts it down to 9 parameters.