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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.
ORDINAL THEORY: INDIFFERENCE CURVE APPROACH In indifference curve approach consumer is assumed to be rational, so that consumer's objective is to maximise her utility by choos
How can we define the real wage as nominal wage We define real wage as nominal wage divided by a price index (typically CPI). In the illustration above, your real wage was 20 i
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A new industry develops, and our government wants to protect it from foreign competition. Which one of the following arguments would appropriately describe this type of protection?
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explain any two factors that cause the shifts in the balance of payments curve.
The following table have data for a hypothetical open economy. The amount of investment spending is unknown. Question: What is the level of private savings? Question: Wh
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Many investors and financial analysts believe the Dow Jones Industrial Average (DJIA) provides a good barometer of the overall stock market. On January 31, 2006, 9 of the 30 stocks
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