Cointegration, aggregate consumption, and the demand for imports: a structural econometric investigation
AbstractThis paper uses a two-good version of Hall's (1978) representative agent, permanent income model to derive a structural import demand equation for nondurable consumer goods. Under the identification restriction that taste shocks are stationary, the model is shown to imply that log imports, log domestic goods, and the log relative price of imports are co-integrated. The data decisively reject the null hypothesis that imports, the relative price of imports, and the consumption of home goods are not co-integrated. We employ the non-linear least squares technique recently proposed by Phillips and Loretan (1990> to estimate the parameters of the import demand equation. The long-run price elasticity of import demand is estimated to be -0.95. The elasticity of import demand with respect to a permanent increase in real spending is estimated to be 2.20. These estimates fall within the range reported in studies by Helkie and Hooper (1986), Cline (1989), and the many studies surveyed by Goldstein and Kahn (1985) The message of this paper is that, at least for non-durable consumer goods, it is possible to interpret the traditional import demand equation as a co-integrating regression, and to interpret the price and expenditure elasticities estimated from such a trade equation as a co-integrating vector. Estimates of the co-integrating vector can be used to recover estimates of the utility parameters of the representative household. The similarity between the OLS and Phillips-Loretan estimates of the parameters suggests that the simultaneous equation bias is not large.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Federal Reserve Bank of New York in its series Research Paper with number 9213.
Date of creation: 1992
Date of revision:
Other versions of this item:
- Clarida, Richard H, 1994. "Cointegration, Aggregate Consumption, and the Demand for Imports: A Structural Econometric Investigation," American Economic Review, American Economic Association, vol. 84(1), pages 298-308, March.
- Richard H. Clarida, 1991. "Co-Integration, Aggregate Consumption, and the Demand For Imports: A Structural Econometric Investigation," NBER Working Papers 3812, National Bureau of Economic Research, Inc.
- Clarida, R.H., 1992. "Cointegration, Aggregate Consumption and the Demand for Imports: A Struct ural Econometric Investigation," Discussion Papers 1992_29, Columbia University, Department of Economics.
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.:
- Hodrick, Robert J., 1989.
"Risk, uncertainty, and exchange rates,"
Journal of Monetary Economics,
Elsevier, vol. 23(3), pages 433-459, May.
- Clinton Shiells & Robert Stern & Alan Deardorff, 1989.
"Estimates of the elasticities of substitution between imports and home goods for the United States: Reply,"
Review of World Economics (Weltwirtschaftliches Archiv),
Springer, vol. 125(2), pages 371-374, June.
- Shiells, C.R. & Stern, R.M. & Deardorff, A.V., 1988. "Estimates Of The Elasticities Of Substitution Between Imports And Home Goods For The United States: Reply," Working Papers 235, Research Seminar in International Economics, University of Michigan.
- Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
- 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.
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
- repec:fth:coluec:544 is not listed on IDEAS
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Farber).
If references are entirely missing, you can add them using this form.