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An I(2) Cointegration Analysis of Small-Country Import Price Determination

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  • Hans Christian Kongsted

    (Institute of Economics, University of Copenhagen)

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    Abstract

    This paper develops a procedure for testing hypotheses on the full set of cointegration parameters of the I(2) model. The proposed test is applied to the analysis of small-country import price determination extending the standard empirical framework to allow for variables integrated of order two. The empirical analysis of Danish data for 1975 to 1995 yields a fully specified I(2) long-run structure in terms of stationary pricing-to-market and inventory relations, a nominal second-order stochastic trend embodied in equal proportions in domestic and foreign price levels, and a real first-order trend driving the relative prices and the real interest rate.

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    File URL: http://www.econ.ku.dk/english/research/publications/wp/1998/9822.pdf/
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    Bibliographic Info

    Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 98-22.

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    Length: 27 pages
    Date of creation: Dec 1998
    Date of revision:
    Handle: RePEc:kud:kuiedp:9822

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    Related research

    Keywords: pricing-to-market; long-run price trends; cointegration; second-order non-stationarity;

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