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

Phillips curve in lowland, The Phillips curve in Lowland takes the form of ...

The Phillips curve in Lowland takes the form of ? = 0.04 - 0.5 (u - 0.05), where ? is the actual inflation rate and u is the unemployment rate. The Phillips curve in Highland takes

Define exchange rate systems, Q. Define Exchange rate systems? Differen...

Q. Define Exchange rate systems? Different nations have different exchange rate systems. The most significant characteristic of an exchange rate system is to what degree the co

Illustrate diffrent types of interest rates, Q. Illustrate diffrent types o...

Q. Illustrate diffrent types of interest rates? There are many other interest rates in a society. For instance, you will earn interest when you deposit money in a bank account

Explain about economic growth rate, Explain about Economys growth rate ...

Explain about Economys growth rate Economy's growth rate: Long-term economic growth, or tendency growth, is the rate of growth the economy can sustain, ignoring the short-term

Measurement of output, Different approaches to measure aggregate output

Different approaches to measure aggregate output

Relationship between l and p, Q. Relationship between L and P? • As lon...

Q. Relationship between L and P? • As long as L is smaller than LB, L may change with no change in prices. In this range, there is no relation between L andP. • When L is betw

Trade, What is the difference between merchantilism and absolute theory?

What is the difference between merchantilism and absolute theory?

Explain negatively impacted productivity of the project, Describe your most...

Describe your most positive experience in working on a group project in which the group's cohesiveness led to greater work productivity. Have you experienced a situation that was j

Analysis the net benefits of cleanup are maximized, Consider the case of c...

Consider the case of cleaning up chemical contamination at an industrial site. The marginal benefits of additional cleanup are decreasing as the amount of cleanup increases. Howeve

Find the compensating variation , Joe has preferences over pizza (p) and be...

Joe has preferences over pizza (p) and beer (b) given by U = pb. The marginal utilities are MU p = b and MU b = p, and Joe's income is I = 60. 1. Find Joe's optimal consumptio

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