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Import Price and Activity Elasticities for the MONASH Model: Johansen FIML Estimation of Cointegration Vectors

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Author Info
Jayant Menon

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Abstract

This study investigates the relationship between manufactured import flows to Australia and relative prices and domestic economic activity over the period 1981Q3 to 1992Q2. This is done through the estimation of import demand functions for total manufactured imports and 29 import product categories defined at the 2-digit level of the AICC by employing the Johansen FIML procedure. The price and activity elasticities will form part of the elasticity files of the MONASH Model, currently being developed at the Centre of Policy Studies. The price elasticities range from 0.24 to 1.75, with a weighted-average of 0.60. We also find evidence of upward bias in price elasticity estimates when an aggregate import function is employed in a context where variation in prices of individual products are negatively correlated with their price elasticities, and when a significant portion of imports are subject to quantitative restrictions (QRs). The unit activity elasticity hypothesis was accepted for one third of our sample. The majority of activity elasticities are greater than one, and usually closer to two.

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Paper provided by Monash University, Centre of Policy Studies/IMPACT Centre in its series Centre of Policy Studies/IMPACT Centre Working Papers with number ip-58.

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Date of creation: Jul 1993
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Handle: RePEc:cop:wpaper:ip-58

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  1. Khan, Mohsm S. & Ross, Knud Z., 1977. "The functional form of the aggregate import demand equation," Journal of International Economics, Elsevier, vol. 7(2), pages 149-160, May. [Downloadable!] (restricted)
  2. Hall, S G, 1991. "The Effect of Varying Length VAR Models on the Maximum Likelihood Estimates of Cointegrating Vectors," Scottish Journal of Political Economy, Scottish Economic Society, vol. 38(4), pages 317-23, November.
  3. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January. [Downloadable!] (restricted)
  4. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  5. Meer, Anthony J & Heijdra, Ben J, 1990. "An Econometric Analysis of the Australian Current Account Balance," Australian Economic Papers, Blackwell Publishing, vol. 29(55), pages 199-225, December.
  6. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  7. Banerjee, Anindya, et al, 1986. "Exploring Equilibrium Relationships in Econometrics through Static Models: Some Monte Carlo Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 253-77, August.
  8. Robert E. Lipsey & Linda Molinari & Irving B. Kravis, 1991. "Measures of Prices and Price Competitiveness in International Trade in Manufactured Goods," NBER Chapters, in: International Economic Transactions: Issues in Measurement and Empirical Research, pages 144-199 National Bureau of Economic Research, Inc. [Downloadable!]
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  9. Asseery, A. & Peel, D. A., 1991. "Estimates of a traditional aggregate import demand model for five countries," Economics Letters, Elsevier, vol. 35(4), pages 435-439, April. [Downloadable!] (restricted)
  10. Bushe, Dennis M & Kravis, Irving B & Lipsey, Robert E, 1986. "Prices, Activity, and Machinery Exports: An Analysis Based on New Price Data," The Review of Economics and Statistics, MIT Press, vol. 68(2), pages 248-55, May. [Downloadable!] (restricted)
  11. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier. [Downloadable!] (restricted)
  12. Stone, Joe A, 1979. "Price Elasticities of Demand for Imports and Exports: Industry Estimates for the U.S., the E.E.C. and Japan," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 306-12, May. [Downloadable!] (restricted)
  13. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July. [Downloadable!] (restricted)
  14. Gregory, R G & Martin, L D, 1976. "An Analysis of Relationships between Import Flows to Australia and Recent Exchange Rate and Tariff Changes," The Economic Record, The Economic Society of Australia, vol. 52(137), pages 1-25, March.
  15. Freebairn, J W, 1986. "The Exchange Rate and the Trade Account: Comment," The Economic Record, The Economic Society of Australia, vol. 0(0), pages 108-10, Supplemen.
  16. Gordon, J M, 1986. "The J-Curve Effects," The Economic Record, The Economic Society of Australia, vol. 0(0), pages 82-88, Supplemen.
  17. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
  18. Sawa, Takamitsu, 1978. "Information Criteria for Discriminating among Alternative Regression Models," Econometrica, Econometric Society, vol. 46(6), pages 1273-91, November. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Premachandra Athukorala & Jayant Menon, 1995. "Modelling Manufactured imports: Methodological Issues with Evidence From Australia," Centre of Policy Studies/IMPACT Centre Working Papers g-112, Monash University, Centre of Policy Studies/IMPACT Centre. [Downloadable!]
    Other versions:
  2. Jacqueline Dwyer & Christopher Kent, 1993. "A Re-examination of the Determinants of Australia's Imports," RBA Research Discussion Papers rdp9312, Reserve Bank of Australia. [Downloadable!]
  3. Higgins, Lindsey M. & Bryant, Henry L. & Outlaw, Joe L. & Richardson, James W., 2006. "Ethanol Pricing: Explanations and Interrelationships," 2006 Annual Meeting, February 5-8, 2006, Orlando, Florida 35425, Southern Agricultural Economics Association. [Downloadable!]
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