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
discuss mec

Some charge that the Crisis of 2008 was caused by the "greed" of Wall Street firms and other bankers. Do you agree with this view? Do you think there was more greed on Wall Street

Aggregate Consumption   This is the aggregate of all expenditures on current consumption goods and services i.e. those which are consumed during the period. Living standards are

An investment promised a payoff of $195 two and a half years from today. At a discount rate of 75% per year what is the present value of this investment? A. 169.47 B. Not enoug

A brewery produces two kinds of beer, stout and IPA . Each batch of stout sells for $60 per unit while each batch of IPA sells for $108. Both products require malt, hops, barley, f

Such analysis permits the firm to determine at what level of operations it will break even (earn zero profit) and to discover the relationship among volume, costs, and profits. It

Consider Gold-Bernstein's Integration roadmap (p. 18).  Construct two business examples, one that clearly calls for a strategic integration effort and the other that call

INSTITUTIONAL MECHANISMS FOR  PROMOTION OF FDI: There is  increasing recognition that  understanding  'the forces of economic globalisation requires taking  a look  at  foreig

Fiscal Policy An Increase in Government Spending: Figure 1 Let us examine how an increase in government spending affects the interest rate and the level of income.

Q. What is Demand for money? Demand for money The demand for money depends negatively on R and positively on the Yin the IS-LM model As fo