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

Subsequent withdrawals increase, What is the amount of five equal annual de...

What is the amount of five equal annual deposits that can provide five annual withdrawals, where a first withdrawal of $1500 is made at the end of year six and subsequent withdrawa

Damaging to the economy, Why do financial crises occur and why are they so ...

Why do financial crises occur and why are they so damaging to the economy?

Pseudoreplication, Give your own example of "pseudoreplication" (sensu Hurl...

Give your own example of "pseudoreplication" (sensu Hurlbert 1984) in an experiment. How does pseudoreplication cause problems for correct inferences from experiments?

Determination of l in the cross model, Determination of L in the cross mode...

Determination of L in the cross model As firms will produce less than Y OPT , they require less labor than L OPT . We can determine exactly how much L they need in order to pro

Macro Economics, At the same meeting of the open market committee where it ...

At the same meeting of the open market committee where it announced Quantitative Easing 3, the Fed chose to also announce that its currently low Fed funds rate of 0 to .25% would b

Tariffs and non-tariff barriers, Tariffs and Non-tariff Barriers A sig...

Tariffs and Non-tariff Barriers A significant aspect of the trade reforms of the 1990s was the reduction in the then prevailing very high import duties (over 300 percent in so

OPEN-MARKET MACROECONOMICS, Macroeconomics: Question 1 and 2 relate to cont...

Macroeconomics: Question 1 and 2 relate to content and skills covered --- OPEN-MARKET MACROECONOMICS: BASIC CONCEPTS , International Trade and Exchange Rates Question 3 relates to

The demand curve , A sporting goods store has estimated the demand curve fo...

A sporting goods store has estimated the demand curve for a popular brand of running shoes as a function of price. Use the diagram to answer the questions that follow. a.

Commercial banks: balance sheet, Commercial Banks: Balance Sheet The ac...

Commercial Banks: Balance Sheet The accompaning table gives the balance sheet of a commercial bank in a simplified format. The balance sheet contains particulars of a Bank's cu

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