Impulse response functions, Macroeconomics

The final and most important part of the methodology is the impulse response functions which will provide the most information with regards to the aim of the project. In order to analyse the variables response to an oil price shock, the VAR has to transform into its Moving Average representation. The moving average representation is necessary to find the impulse response function of the VAR model. In this project I will assess the impulse responses using the typical Cholesky Decomposition. From these responses, future responses of each variable to a shock in oil price can be analysed. Impulse responses display the response of the future values of each variable to a one standard deviation oil price shock, whilst making the assumption that the shock normalises and returns to zero in subsequent periods. Furthermore it is assumed that all other errors are also zero. The underlying thought behind shocking one variable whilst ensuring that the others remain constant is the most effective way of measuring the impact of an oil price shock on other macroeconomic variables. Therefore this section will form the strongest case as to whether natural oil price shocks impact positively or negatively on the key macroeconomic variables in the UK.

Posted Date: 4/13/2013 5:34:23 AM | Location : United States

Related Discussions:- Impulse response functions, Assignment Help, Ask Question on Impulse response functions, Get Answer, Expert's Help, Impulse response functions Discussions

Write discussion on Impulse response functions
Your posts are moderated
Related Questions
Interest Rates (R) - I feel that it is important to include a variable which represents the monetary sector of the economy because those inflationary pressures which are expected t

The Marginal Costs (MC) for a firm is given by the function MC=50x. Please find the Marginal Revenues (MR) for each of the following scenarios (if appropriate). Then, find the prof

with help of is-lm technique explain the process of integration of money market and goods market by way of keynesian approach

Overnight interest rate of Central banks When the central bank buys government securities, it purchases from many individuals, companies and institutions. Deposits and reserves

using a graph of the classical labour market illustrste the effects of real wage existing in the market lower than the equilibrium real wage

Financing of Fiscal Deficit: Since the size of balanced budget of the multiplier is small, it is not for all time possible to get the needed demand expansion by raising the exp

Doesn''t money move out of stock markets into bond? If more people buy bonds does this not push bond prices up and yields down? My question is about this quote from the Gardian tod

Why do some countries have a low real per capita income? Low real per capita income considers being largely due low productivity (i.e., output per worker) of low valued added

The marginal approach to profit maximization means that a firm should produce until a. marginal revenue equals zero b. marginal revenue equals marginal costs c. marginal cost becom

One of our clients is a major homebuilder in the Midwest. This company believes that sales of their new homes are highly correlated with business cycles in the overall US economy.