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

Explain about the circular-flow of economic activities, Explain about the c...

Explain about the circular-flow of economic activities. Circular-Flow of Economic Activities: Economic Agents:    a. Households b. Firms Where they interact:

What is as curve, The AS curve Say that nominal wage in year 1 (at a p...

The AS curve Say that nominal wage in year 1 (at a particular point in time) is equal to 1000. On the horizontal part of response curve, real wage is constant and equal to its

Wto negotiations, WTO Negotiations: As is obvious from the above expla...

WTO Negotiations: As is obvious from the above explanation  that India has favoured multilateral trade reforms ever since the time of GATT (1947) to WTO (1995). Currently WTO

Assignment, Consider the economic data for Country A: Unemployment level of...

Consider the economic data for Country A: Unemployment level of 15% Natural Rate of Unemployment is 6%. Required Reserves is 25% C = 50 + 0.75Y; I = 600; G = 250 (note: T = 200 for

Modern global economic system, 1) The modern global economic system I...

1) The modern global economic system In finance we learn that while the future is always uncertain there are ways we gain insight and make the best possible investment decisi

International trade, how can a country maintain equilibrium GDP with foreig...

how can a country maintain equilibrium GDP with foreign trade?

Distinguish static and dynamic gains from trade, Question 1: Critically...

Question 1: Critically analyse the costs of inflation. Which of these items is likely to have encouraged many governments in their adoption of inflation as public enemy number

Aggregate production function, The aggregate production function Defin...

The aggregate production function Definition Imagine the national economy during a short period of time (say one week). We refer:  L: total amount of work used duri

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

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