The project has been split into four main chapters; literature review, data and methodology, results and a conclusion. The appendix contains the estimated tables and graphs, of which condensed versions appear in the paper where necessary.

The literature review has two components. The first is a review of economic literature based around the topic. This section focuses mainly on leading theoretical literature based around adverse supply shocks in the macroeconomy as these arise following an oil price shock. The second part of the review concerns previous empirical studies which have been completed by many different economists, econometricians and academics. In This section I will critically analyse and assess previous approaches, methodologies and results. The empirical studies date back to 1980 when Christopher Sims produced the first and most revolutionary study on the use of vector autoregression analysis.

Data and methodology are explained at length in chapter three. The first part of the chapter focuses entirely on the data. Initially a description of the variables used in the model is given and the reasons behind their selection. Following this is a table summarising the descriptive statistics from the data. This enables the reader to read to identify the key statistics from the large set of data used in this paper. The first half of chapter three ends with a brief exploration into the performance of the UK economy throughout the sample period. The second half of chapter three discusses the methodology used to observe the correlations between oil prices and the remaining variables explaining the steps taken to collect the final results. A variety of tests are complete to assist in selecting the VAR specification. Therefore this section is explained in detail so that the ensuing results can be understood better by the reader. The limitations of the vector autoregression model are discussed within chapter three.

Chapter four discusses the results. As mentioned, there are many tests and estimations which are essential to complete before the most important set of results, the impulse response functions, can be analysed. The chapter is broken down into stages; each stage represents a different test that was completed. At the end of each stage, a brief summary describes the meaning of the results for each specific test. The final stage incorporates the graphs of the impulse response functions and is preceded by a more in depth analysis of what the graphs show. This stage is the most important as it can be directly related to the aims of the project.

Finally, chapter five is the conclusion. In this chapter the main findings of the paper will be discussed and related to the initial aims. These findings will be compared to previous empirical studies to analyse any major differences between the results.