An Impulse-Response Function for a VAR with Multivariate GARCH-in-Mean that Incorporates Direct and Indirect Transmission of Shocks

An impulse response function is derived for a vector autogressive model with a multivariate GARCH-in-Mean process. The multivariate GARCH volatility speci cation is based on Tsiaplias and Chua (2009) and accommodates both direct and indirect volatility spillovers. The impulse response function generalises Elder (2003) by considering the addition of common transmission channels (pursuant to which indirect spillover can occur) to a VAR model with multivariate GARCH-in-Mean. The extension is relevant for variables that exhibit direct and indirect volatility spillovers, such as exchange rates (Tsiaplias and Chua, forthcoming)