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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.
The demand equation for champagne is given by P = 10 - Q. The supply schedule for champagne is given by P = Q. Note that P denotes price per bottle in dollars, and Q is quantity me
State in brief the Nominal wage level In macroeconomics, we are generally not interested in the wage for a specific individual though in the average wage for all employed indi
Question 1: Discuss why living standards are higher in some countries than others. Question 2: (a) How is inflation measured? (b) What are the causes and consequence
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Income and Substitution Effects of a Price Change Indifference curve analysis can be used to separate the income effect (IE) from substitution effect (SE). This is shown in Fig
Compute the following probabilities a) If Y is distributed N(1,4) find Pr(y ? 3) b) If Y is distributed N(3,9) find pr(y>0) c) If Y is distributed N (50,25) find pr(40?Y?5
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The enrollment in a course offered by the College of Business is random and is described by the following probability distribution: there is a 9% chance of 18 students, 22% chance
Outline briefly a. How people make decisions? b. How they interact? c. How economy as a whole works? 1. Give three examples of important trade offs, th
According to the imperfect-information model, when the price level is greater than the expected price level, output will _____ the natural level of output A) be greater than
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