Var Model For German Financail Market

BUSN80: Group assignment 1 Introduction and hypothesis The dumbfound of this report is to give way the nature of the long marge kinship that exists between the evolutions of the fiscal grocerys and the economic surgical procedure of a country. For this purpose we chose to focus on Germany in 2007-2009, when the last monetary crisis took place. The indicators we routined for financial markets ar the consumer price king (cost-of-living index) and a loose linage market index. While to mea legitimate the economic performance of Germany we workoutd deuce macroeconomic indicators: GDP and the rate of unemployment. Because the direction of this relationship is non clear and all the variables atomic number 18 endogenous we decided to use a vector autoregressive regulate (form present on referred to as VAR). A VAR is a systems retroversion model with both or more variables, where each of them is aquiline on preliminary lags of itself and previous lags of the other v ariables of the system (Brooks 2008, pp. 290-292). Our informationset is make of quarterly bills of the quartette variables, but each of them is expressed in different unit of measurements, in particular we take hold the observation on unemployment in a rate and not in absolute numbers.

Thus, before to sterilize our VAR we make a logarithmic transformation of GDP, CPI and the stock market index and we take the first differences of the data on unemployment (in order to make out their percentage change). Furthermore we procreate the logarithm of GDP, CPI and stock market index data for 100 to harmonize their unit with the one of unempl oyment. Our variables are indeed specified! as: DE_LNGDP, DE_LNCPI, DE_LNSTOCKR, DE_LNUNEM. methodology Before to omen our VAR model we also affect to make sure that all the variables are stationary so that we don´t risk to have spurious regressions (Brooks 2008, p.304), thusly we used the Augmented Dickey fraught(predicate) (ADF) test to evaluate the stationary features of the variables. Once we are sure the variables are all stationary, we estimate the VAR model and use the...If you want to get a full essay, order it on our website: BestEssayCheap.com

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