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An I(2) Cointegration Analysis of Price and Quantity Formation in Danish Manufactured Exports

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  • Heino Bohn Nielsen

    (Institute of Economics, University of Copenhagen)

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    Abstract

    The long-run and short-run structure of the Danish manufacturing export sector is analyzed within a cointegrated vector autoregressive model. The price variables of the analysis can be characterized as integrated of second order, I(2), but long-run homogeneity seems to cancel the I(2)-trend allowing the analysis of a transformed data set to take place within the cointegrated I(1) framework. Two long-run relations are found and identified as a demand-relation for Danish exports and a polynomially cointegrated price relation. In the price formation a large weight to foreign prices and an effect from the rate of inflation to the steady-state markup are found. The latter effect is interpreted as an element of caution in the price setting in an inflationary environment. To characterize the short-run behavior of the Danish export-sector a structural representation of the model is developed

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    File URL: http://www.econ.ku.dk/english/research/publications/wp/2001/0101.pdf/
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    Bibliographic Info

    Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 01-01.

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    Length: 20 pages
    Date of creation: Jan 2001
    Date of revision:
    Handle: RePEc:kud:kuiedp:0101

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    Related research

    Keywords: Cointegration; I(2); Export Pricing; Market-shares; Small Open Economy;

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