Impulse response functions, Macroeconomics

Assignment Help:

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.


Related Discussions:- Impulse response functions

What would be due process require in circumstances, The Russ College of Eng...

The Russ College of Engineering and Technology of Ohio University announced in a press conference that it had found "rampant and flagrant plagiarism" in the theses of mechanical en

Price discrimination is forbidden, Suppose the ABC chemical company discove...

Suppose the ABC chemical company discovers a drug that cures the common cold. ABC has plants in Europe and in the United States and can produce the drug in either continent at a ma

The functions of price mechanism in a free market economy, Price Mechanism ...

Price Mechanism Price mechanism is the point, which equilibrates supply and demand within a market. It is a mechanism of pricing. The price mechanism is one, which permits the p

Alternatives type of production, Production Alternatives Type of production...

Production Alternatives Type of production A B C D E Automobiles 0 2 4 6 8 Forklifts 30 27 21 12 0 If the economy is at point C, what is the (opportunity) cost of 2 more automobile

How do you explain gni per capita, To determine of the wealth is earned by ...

To determine of the wealth is earned by nations by economic activates all around the globe. Gross National Income comprises the total value of goods and services formed within a

Price of gasoline has recently come down, The price of gasoline has recentl...

The price of gasoline has recently come down as has the quantity. Show graphically and explain what might have caused this.

Geometric gradient series, Determine the present worth of a geometric gradi...

Determine the present worth of a geometric gradient series with a cash flow of $50,000 in year 1 and increases of 6% each year through year 8. The interest rate is 10% per year.

What is globalization, what are its effects on the Indian economy? Ans) ...

what are its effects on the Indian economy? Ans) It is largely positive. Globalization has brought a lot of jobs and large sums of investment to India. India's economy has been

Money demand, money demand = 3500 - 250i what is the interest rate present ...

money demand = 3500 - 250i what is the interest rate present if the money market is in equilibrium

National income statistics, briefly explain any five uses of national incom...

briefly explain any five uses of national income statistics

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd