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

Adjustment to equilibrium, reason why the change in equilibrium of output i...

reason why the change in equilibrium of output is greater than the change in initial invest ..

Determine exogenous enhance in the velocity of money, Assume in country-A C...

Assume in country-A Central Bank cares only about keeping the price level stable & in country-B, its central bank cares only about keeping output & employment at their natural rate

Tax-deductible and interest rate, Suppose that Lilistan has two types of ci...

Suppose that Lilistan has two types of citizens: low-income citizens (income = $20,000) and high-income citizens (income = $80,000). Interest income is currently taxed and each typ

Illustrate the yield to maturity each bond, Consider following 5,000 value ...

Consider following 5,000 value securities. Bond Coupon Rate Selling price coupon payment yield to maturity% 6% $5000 6% $5500 10% $5000 12% $4500 A. Are those securities abov

Mba, Consider the following: The city council has just approved the constru...

Consider the following: The city council has just approved the construction of a water park in your town. You are responsible for studying the impact of the new water park on the l

Name the largest budget deficit country, Name the largest budget deficit co...

Name the largest budget deficit country In 2009 Greece was eurozone country with largest budget deficit (about 16.0% of GDP), while Finland was the country with the smallest bu

Money illusion, A significant argument for the augmentation has to do with ...

A significant argument for the augmentation has to do with concept of money illusion. Money illusion means that you care about nominal rather than real amounts. Imagine that your s

Why do some countries have a high real per capita income, Why do some count...

Why do some countries have a high real per capita income? High standard of living within the industrialized nations consider to be largely because of the high productivity of

Market supply of labour, Use a graphical illustration to describe briefly w...

Use a graphical illustration to describe briefly what the influence of each of the following would be on the market supply of labor:(a) an increase in immigration (b) more women en

Consumer equilibrium -cardinal theory, Consumer Equilibrium: According...

Consumer Equilibrium: According to our assumption for 'x' units consumption of the commodity, gross utility obtained by the consumer is U(x).But for this, the consumer must sp

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