A re-assessment of German import demand
AbstractEmpirical studies analysing German import demand functions traditionally report implausibly high income and relativly low price elasticities. Furthermore, estimation results strongly depend on the observation period. Minor variations in the estimation period typically lead to insignificant price terms often displaying the wrong sign. Based on an extensive econometric analysis, the author shows that these problems are caused by the use of highly aggregated activity variables (GDP or total demand). The problem is easily solved if GDP components, namely exports and investment, are used to model domestic economic activity. We find that imports, exports, investment, and a relative import price form highly stable cointegration relationships. The corresponding activity elasticity is clearly below 1 and the price elasticity is highly significant. Changes in the estimation period neither change the impact nor the significance of the determinants of imports.
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Bibliographic InfoPaper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 08-2007.
Length: 34 pages
Date of creation: 2007
Date of revision:
German import demand equation; price elasticity; income elasticity; activity elasticity; aggregation problems; error correction model;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-18 (All new papers)
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