Can I use Implied volatility as a dependent variable in a GARCH model? I believe my IV data shows ARCH effects and hence can I use it to model volatility of the volatility? I know literature has used logged price differences in GARCH model, So I am a little confused If IV can be used or not (Since GARCH models historical volatility whereas IV is a forward looking measure)?
I am not sure where you're going, but GARCH models usually have two equations: (1) an equation describing the conditional expectation of the dependent variable and (2) an equation describing the conditional variance of the error term in equation (1) as a process that is perfectly anticipated 1 period ahead.
When you use returns in equation (1), equation (2) is then used to filter out the condition volatility process from returns. If you say you want to model IV or its growth rate using GARCH, you're trying to model the volatility of IV.
Is this what you want to do?