Var model, Macroeconomics

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The estimated statistics from the VAR model are not able to be interpreted to solve the problem of this coursework due to reasons that are discussed in the next subchapter. Therefore throughout this paper there will be no formal analysis of the statistics directly from the VAR table. Once the VAR has been estimated, the model will be transformed into the moving average representation version. This representation can then be used to produce the impulse responses of to the other variables in response to an oil price shock. These impulses responses will offer the most information about the correlations between oil prices and the remaining variables. Before analysing the effects of oil price shock by using impulse response functions, there are many key steps which need to be taken to ensure that the goodness of fit of the model and accuracy of the results are of high standard, otherwise the results will be meaningless.


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