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

Internatinal trade, HOW CAN A COUNTRY MAINTAIN EQUILIBRIUM GDP IN AFOREIGN ...

HOW CAN A COUNTRY MAINTAIN EQUILIBRIUM GDP IN AFOREIGN TRADE?

Equilibrium in the labor market, Q. Equilibrium in the labor market? E...

Q. Equilibrium in the labor market? Equilibrium in the labor market  Real wage W/P will be equal to the equilibrium real wage in the classical model

Law of diminishing returns, Explain the law of diminishing marginal returns...

Explain the law of diminishing marginal returns using the example of a factory which is currently running at half capacity and employs more staff

Defective electric tooth brushes, Three defective electric tooth brushes we...

Three defective electric tooth brushes were shipped to a drug store by Clean Brush Products along with 17 non defective ones. A) What is the probability the first two electric t

Money market, suppose that a persons wealth is kshs. 50,000 and her yearly ...

suppose that a persons wealth is kshs. 50,000 and her yearly income is kshs. 60,000. suppose further that her money demand function is given by Md = y(0.35-i) where i= interest

Institutional setting for trade policy formulation, Institutional Setting f...

Institutional Setting for Trade Policy Formulation: While the Ministry of Commerce has the main responsibility of formulating India's trade policy, it also seeks policy inputs

Analyse the assumptions of price elasticity, In an article about the financ...

In an article about the financial problems of USAToday,News week reported that the paper was losing about $20 million a year. A Wall Street analyst said that the paper should raise

Artificial intelligence and neural networks, Problem >> Explore the rel...

Problem >> Explore the relationship between Artificial intelligence and Neural networks. The systems which use this type of intelligence are known as artificial intelligent

Gross domestic product, GDP is an important indicator of a nation's economi...

GDP is an important indicator of a nation's economic performance. It has many components which contribute to the growth of the economy. Oil is a minor component of GDP and therefor

Explain the determinants of transaction demand, Macro Economics 1. How...

Macro Economics 1. How was the Classical Theory of interest role criticized by Keynes? 2. Illustrate the barter system that was used in early times in lieu of money. 3.

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