An I(2) Cointegration Analysis of Small-Country Import Price Determination
AbstractThis 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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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 98-22.
Length: 27 pages
Date of creation: Dec 1998
Date of revision:
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pricing-to-market; long-run price trends; cointegration; second-order non-stationarity;
Find related papers by JEL classification:
- F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
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