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Interest Rates (R) - I feel that it is important to include a variable which represents the monetary sector of the economy because those inflationary pressures which are expected to be present post oil price shock are likely to impose pressures onto the monetary demand in the economy. Therefore Interest Rates (R) will be incorporated into the VAR model. From this we cannot examine monetary policy, due to the features of the VAR model. However we are able to observe changes in the rate of interest following an oil price shock.The Interest Rates statistics are calculated as the mean average throughout each quarter.
With the aim of this project to observe the impact of oil price shocks on macroeconomic indicators, testing for causality between these variables will establish whether or not, oil
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explain the structure of the economy and its impact on the gdp of sountry.
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Question : The long-run position of an economy is described by the quantity theory of money: M/P = L (Y, r) Where M: nominal money stock; P: price level; Y: real income a
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