In order to calculate GIRFs for every history, we prolonged potential output at the end of the sample.
1: GIRFs for 1% shock in government spending and net taxes--SR
This section provides a simple analytical explanation on a pitfall in using the GIRF, which demonstrates potentially serious problems of using the GIRF.
yj](n) denote the GIRF and the OIRF at time t + n respectively, when there is one standard error shock at time t to the jth variable in an m-variate VAR with [y.
The GIRF, therefore, is not general in effect because it employs extreme identifying assumptions that each variable is ordered first.
The GIRF is highly persistent when the sizes of the shocks are small, such that the initial response of the real exchange rate is smaller than the band.
Table 4 displays the estimated half-lives of various sizes of shock to the real exchange rates based on the GIRF.
1], represents the half-lives calculated from the peak of GIRF to the band edge of the equilibrium, and [h.
For each regime, the figures represent the ratio between the
GIRF for shocks of magnitude two standard errors over the
GIRF for unit shocks; Figure 3 is for negative shocks and Figure 4 for positive shocks.
The pattern of GIRF suggests that oil price increases may reduce the supply of intermediate goods industries and the demand for final goods industries [Lee and Ni (2002)].
The GIRF reveals that real effective exchange rate is most important source of disturbance following either oil price or food price shocks.
Keywords: Oil and Food Price Shocks, SVAR, GIRFs, GFEVDs, Pakistan
