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How can I determine the impact of a negative shock to lending rates via the impulse response function in early stages?

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Question added by Siham Amer , Financial Analyst , Noor Al Hikmah Group
Date Posted: 2018/11/12
Ashraf E. Mahmoud (PhD)
by Ashraf E. Mahmoud (PhD) , University Lecturer, Freelancer Consultant and Trainer for Int'l Business & Banking TF. , FreeLancer

Thanks for invitations,

Following our colleagues specialized answers and replies.

Abid Ali
by Abid Ali , Accountant , STC

A shock means change the state of the variable and see how the others will respond. Shock effects in impulse response functions are the mirror image.  In a dummy case, the change means an unexpected exit from one state to a totally different one (say; from crises to no crises). Therefore, logically we can't accept such a sudden shock. The impulse responses for positive and negative shocks, (interact the endogenous variables with a dummy indicating a negative change in lagged policy variable,)

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