EXPLORING ALL VAR ORDERINGS FOR CALCULATING SPILLOVERS? YES, WE CAN!—A NOTE ON DIEBOLD AND YILMAZ (2009)
Article first published online: 9 DEC 2013
Copyright © 2013 John Wiley & Sons, Ltd.
Journal of Applied Econometrics
Volume 29, Issue 1, pages 172–179, January/February 2014
How to Cite
Klößner, S. and Wagner, S. (2014), EXPLORING ALL VAR ORDERINGS FOR CALCULATING SPILLOVERS? YES, WE CAN!—A NOTE ON DIEBOLD AND YILMAZ (2009). J. Appl. Econ., 29: 172–179. doi: 10.1002/jae.2366
- Issue published online: 23 JAN 2014
- Article first published online: 9 DEC 2013
- Manuscript Revised: 8 APR 2013
- Manuscript Received: 13 FEB 2013
Diebold and Yilmaz (Economic Journal 2009; 119; 158–171) introduce the spillover index to measure linkages between international financial markets. As their index depends on the ordering of the variables in the underlying VAR model, they check robustness by computing the index for a small number of randomly chosen permutations, stating that it was impossible to explore the huge number of renumerations. Building on a new divide-and-conquer strategy, we provide an algorithm for swiftly calculating the spillover index's maximum and minimum over all renumerations. Using this new algorithm, we find that the true range of the spillover index can be up to three times as large as estimated by Diebold and Yilmaz. Copyright © 2013 John Wiley & Sons, Ltd.