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

Little evidence to support a direct causation, As it turns out, there is li...

As it turns out, there is little evidence to support a direct causation between income and children. (If I am poor, then I will decide to have a lot of children? Alternatively: I h

Partial equilibrium and surplus, The city of Cabernet is very famous for it...

The city of Cabernet is very famous for its production of wine. The inhabitants of the city have an aggregate demand for wine that can be described as follows: D(p) = Q d =150-

Help, Given the following data for StewieLand, a closed economy in 2012… r...

Given the following data for StewieLand, a closed economy in 2012… real gdp = $20,000 public savings = $1,000 consumption = $11,000 tax revenue collected = $4,000 Solve for

National income statistics, discuss four weaknesses of using national incom...

discuss four weaknesses of using national income statistics in comparing living standards between two countries

Average price of a textbook, The demand for textbooks is Q=200-P+25U-50Pbee...

The demand for textbooks is Q=200-P+25U-50Pbeer. Assume that the unemployment rate U is 8 and the price of beer P beer is $2. When the average price of a textbook is P=$100, the el

Money into the account, Suppose you will receive $130 in six months and hav...

Suppose you will receive $130 in six months and have access to an account that earns 1/2% per month. If you deposited the money into the account how much would you have 17 months f

The money supply and the interest rate, Another area where monetarists diff...

Another area where monetarists differ from Keynesians is money supply and interest rates. In the Keynesian analysis with less than full employment level equilibrium, the interest r

Microsoft stock buy call options, Suppose you buy call options on Microsoft...

Suppose you buy call options on Microsoft stock. Each option costs $2 and has the strike price of $40 and the expiration date July 1. Discuss whether you would exercise the options

Aggregate supply (as), Aggregate Supply (AS) We now shift our attentio...

Aggregate Supply (AS) We now shift our attention to the supply side of the macroeconomy. Aggregate supply explains the production and pricing side of the economy and the behav

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