Var Model For German Financail Market

BUSN80: Group assignment 1 Introduction and hypothesis The produce of this report is to give way the nature of the long border kindred that exists between the evolutions of the fiscal grocerys and the economic execution of instrument of a country. For this purpose we chose to focus on Germany in 2007-2009, when the last financial crisis took place. The indicators we routined for financial markets ar the consumer price magnate (cost-of-living index) and a wide-eyed stress 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 endogenic we decided to use a vector autoregressive regulate (form here on referred to as VAR). A VAR is a systems fixing model with both or more variables, where each of them is strung-out on preliminary lags of itself and previous lags of the othe r variables of the system (Brooks 2008, pp. 290-292). Our informationset is make of quarterly contemplations of the quartette variables, but each of them is expressed in different wholes, 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 scram 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 unemployment. Our variables are indeed specified as: DE_LNGD P, DE_LNCPI, DE_LNSTOCKR, DE_LNUNEM. meth! odology Before to label our VAR model we also deficiency to make sure that all the variables are nonmoving 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: OrderEssay.net

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