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Technology Shocks and Cointegration in Quadratic Models of the Firm

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  • Rossana, Robert J

Abstract

In two quadratic models of a firm, it is shown that, if the firm's production function is not separable in its arguments, then the presence of any unit root technology shock will prevent factor inputs from being cointegrated with input prices. Absent integrated technology shocks, there will be one cointegrating vector for every quasi-fixed factor held by the firm, thereby providing one possible rationale for multiple cointegrating vectors in multivariate time series systems. The parameters of these cointegrating vectors may be used to recover the parameters of the static factor demand functions obeyed by the firm. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Rossana, Robert J, 1995. "Technology Shocks and Cointegration in Quadratic Models of the Firm," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 5-17, February.
    • Handle: RePEc:ier:iecrev:v:36:y:1995:i:1:p:5-17
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    Cited by:

    1. Rossana, Robert J., 1998. "On the adjustment matrix in error correction models," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 427-444, July.
    2. Robert J. Rossana, 2009. "Normalization in cointegrated time series systems," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(4), pages 1547-1560, November.
    3. Ramey, Valerie A. & West, Kenneth D., 1999. "Inventories," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 13, pages 863-923, Elsevier.
    4. Bivin, David, 1999. "A Model of the Production Lag and Work-in-Process Inventories," Journal of Macroeconomics, Elsevier, vol. 21(3), pages 509-536, July.
    5. van Garderen, Kees Jan & Lee, Kevin & Pesaran, M. Hashem, 2000. "Cross-sectional aggregation of non-linear models," Journal of Econometrics, Elsevier, vol. 95(2), pages 285-331, April.
    6. H. Youn Kim & Junsoo Lee, 2001. "Quasi-fixed inputs and long-run equilibrium in production: a cointegration analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(1), pages 41-57.

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