For an ARCH(1) model, the SHAZAM statement simply needs the option ARCH=1 which has been set correctly. The specification of exogenous variable variance with index by listing (index) after the list of independent variables is also correct.

In the SAS model it appears from their online documentation that an ARCH(1) model would need the option GARCH=(P=0,Q=1) not GARCH=(P=1) which appears to fit a GARCH(1,1) model. The SAS documentation does not clearly indicate how to specify the same form of exogenous variable variance with the hetero statement.

Note that in SHAZAM you can check for the presence of heteroskedasticity using the DIAGNOS / HET statement following an OLS command to perform Lagrange Multipler Tests (including a test for ARCH=1 errors). Page 246 of the SHAZAM 11 manual has further details.

Can you publish the sample data, commands and output for each please. Note that SHAZAM has numerous options on the HET command including 3 optimization methods. Suggest you also confirm the nature of the heteroskedasticity specified. e.g. multiplicative, dependent variable heteroskedascity etc

I am running a model where the index variable is in the ARCH equation for the variance. How would you call that type of het specification? Thank you for your help!

In SHAZAM I am running

In SAS I am running

OUTPUT SHAZAM:

(more)I should probably make it a very specific question. I want to run an ARCH(1) model where a have an independent indicator variable in the variance ARCH equation as a linea term i.e. h= const+ARCH(1)+b*indicator. So far I have been using het price index interaction lag1_pri (index) /arch=1 Is this the right syntax? I cannot assign model=varlin for a linear term with ARCH. What is the proper way to do it? Thanks.

Thank you for your reply.How about my second question regarding the functional form of the exogenous variable?