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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 AS-AD model with inflation When we remove assumption of constant prices to allow varying real wages. Resulting model was known as AS-AD model. Similarly we now remove the a
Assuming an economy with no government and no foreign trade. Measure GDP for the following output scenario: There are three firms: firm A is a minning company, firm B is a stee
Take a position on the following economic issue in the "yes" or "no" selection, support your position with economic theory and critical thinking skills. ISSUE: Should the Feder
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To really understand it, compute the following price elasticities of demand: · The price of a laptop increases by 20% and there is a 40% drop in the quantity dem
COMPARE AND CONTRAST CLASSICAL MODEL AND KEYNESIAN THEOTY
unplandned change in inventory are coutned as investment spending by firms
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