Discuss the propagation mechanism of shocks

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Reference no: EM132181079 , Length: 3

Econometrics Assignment -

Using the dataset assigned to your profile, A UNIQUE file (pdf) with solutions, comments, and an Appendix with the gretl (or any alternative software) analysis. All solutions and comments MUST be contained in the first three pages of the document. In correcting the exam I will consider the comments and solutions contained in the first three pages.

Suppose to evaluate, through a structural VAR model, the dynamic impact of oil price shocks on some macroeconomic variables in a "small open economy". Let consider the following vector of variables yt = (oilt , inft ,growtht)', where oilt is the oil price (in domestic currency), inft is the inflation rate (growth rate of the consumer price index), and growtht is the growth rate of the gross domestic product. Using the first three series reported in the dataset, specify and estimate a VAR model and discuss the propagation mechanism of shocks by calculating structural impulse response functions.

Let choose one of the three variables and estimate an appropriate ARMA model, commenting on the differences with respect to the corresponding equation in the VAR model need data base also plus appendix with graph.

The Purchasing Power Parity (PPP) states that once converted to a common currency, national price levels should equalize. From a theoretical point of view, if PA and PB are two price indices related to Country A and Country B and EAB is the nominal exchange rate, the PPP relation can be written as PA=EAB*PB Or, when using a log transformation, pA=eAB+pB where lower-case letters denote logs of the variables. From an empirical point of view, if the series are nonstationary, one possibility to test for this condition is to refer to the notion of cointegration. Using the series reported in the dataset (already transformed in logarithmic terms), verify first that the variables are nonstationary, and then provide an empirical analysis to confirm the PPP hypothesis. Moreover, through an error correction model, verify the reaction of the three variables to disequilibria in a "possible" cointegrating relation.

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Reference no: EM132181079

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