In economics

Economics

Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

 a shock is an unexpected or unpredictable event that affects an economy, either positively or negatively. Technically, it refers to an unpredictable change in exogenous

Exogenous

Exogenous refers to an action or object coming from outside a system. It is the opposite of endogenous, something generated from within the system....

 factors—that is, factors unexplained by economics—which may have an impact on endogenous

Endogeneity (economics)

In an econometric model, a parameter or variable is said to be endogenous when there is a correlation between the parameter or variable and the error term. Endogeneity can arise as a result of measurement error, autoregression with autocorrelated errors, simultaneity, omitted variables, and sample...

 economic variables.

The response of economic variables, like output and employment

Employment

Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...

, at the time of the shock and at subsequent times, is called an impulse response function.

Types of shocks

If the shock is due to constrained supply it is called a supply shock

Supply shock

A supply shock is an event that suddenly changes the price of a commodity or service. It may be caused by a sudden increase or decrease in the supply of a particular good. This sudden change affects the equilibrium price....

 and usually results in price increases for a particular product. A technology shock is the kind resulting from a technological development that affects productivity

Productivity

Productivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input...

.

Shocks can also be produced when accident

Accident

An accident or mishap is an unforeseen and unplanned event or circumstance, often with lack of intention or necessity. It implies a generally negative outcome which may have been avoided or prevented had circumstances leading up to the accident been recognized, and acted upon, prior to its...

s or disaster

Disaster

A disaster is a natural or man-made hazard that has come to fruition, resulting in an event of substantial extent causing significant physical damage or destruction, loss of life, or drastic change to the environment...

s occur. The 2008 Western Australian gas crisis

2008 Western Australian gas crisis

The Western Australian gas crisis was a major disruption to natural gas supply in Western Australia, caused by the rupture of a corroded pipeline and subsequent explosion at a processing plant on Varanus Island, off the state's north west coast on 3 June 2008...

 resulting from a pipeline explosion at Varanus Island

Varanus Island

Varanus Island is the largest of the Lowendal Islands, an archipelago off the north west coast of Western Australia, near Karratha in the Pilbara region...

 is one example.

See also

• Impulse response function
• Vector autoregression
  Vector autoregression
  Vector autoregression is a statistical model used to capture the linear interdependencies among multiple time series. VAR models generalize the univariate autoregression models. All the variables in a VAR are treated symmetrically; each variable has an equation explaining its evolution based on...
  
  
• Dynamic stochastic general equilibrium
  Dynamic stochastic general equilibrium
  Dynamic stochastic general equilibrium modeling is a branch of applied general equilibrium theory that is influential in contemporary macroeconomics...
  
  
• Exogenous
  Exogenous
  Exogenous refers to an action or object coming from outside a system. It is the opposite of endogenous, something generated from within the system....
  
  
• Supply shock
  Supply shock
  A supply shock is an event that suddenly changes the price of a commodity or service. It may be caused by a sudden increase or decrease in the supply of a particular good. This sudden change affects the equilibrium price....
  
  
• Demand shock
  Demand shock
  In economics, a demand shock is a sudden event that increases or decreases demand for goods or services temporarily. A positive demand shock increases demand and a negative demand shock decreases demand. Prices of goods and services are affected in both cases. When demand for a good or service...
  
  
• Oil crisis
  Oil crisis
  Oil crisis may refer to:1970s*1970s energy crisis*1973 oil crisis*1979 energy crisisPost 1970s*Oil price increase of 1990*2000s energy crisis...
  
  
• Shock therapy
  Shock therapy (economics)
  In economics, shock therapy refers to the sudden release of price and currency controls, withdrawal of state subsidies, and immediate trade liberalization within a country, usually also including large scale privatization of previously public owned assets....
  
  
• Social risk management
  Social risk management
  Social risk management is a new conceptual framework assigned and designed by the World Bank. The objective of SRM is to extend the traditional framework of social policy to the non-market based social protection of which its three primary strategies include prevention, mitigation, and coping. ...