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
GIRFs are more appealing compared to Sims's (1980) orthogonalised impulse response functions as they are invariant to the ordering of the variables [Galesi and Lombardi (2009)].
Figure 3 displays the GIRFs of each variable to a positive unit standard deviation shock to food prices.
q] is the GIRF of the real exchange rate; [eta] is the forecasting horizon; [v.
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.