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Estimating Argentina''s imports elasticities

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  • A Duarte
  • J L Nicolini-Llosa
  • I Paya

Abstract

The aim of this paper is to provide new estimates of the income and price elasticities of the demand for imports in Argentina. Given the non-stationary nature of the data and to avoid problems of spurious regression we applied co-integration techniques to quarterly data over the period 1970:1 -2005:4. Three results are worth mentioning. First, there is a statistically significant and stable long-run relationship between the level of imports, real income and the exchange rate. Second, in the long run, a very high-income elasticity and a low real exchange rate elasticity determine the demand for imports. This result confirms an old argument concerning Argentina's constraint to economic growth as originally developed by the well-known structural approach. Third, while the linear error correction models show problems of misspecification, a non-linear STAR model demonstrates that deviations from long-run equilibrium adjust not only in a non-linear way but also at a slower speed of adjustment than the linear one.

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Bibliographic Info

Paper provided by Lancaster University Management School, Economics Department in its series Working Papers with number 583372.

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Date of creation: 2007
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Handle: RePEc:lan:wpaper:583372

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  1. Hendry, David F & Mizon, Grayham E, 1978. "Serial Correlation as a Convenient Simplification, not a Nuisance: A Comment on a Study of the Demand for Money by the Bank of England," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 88(351), pages 549-63, September.
  2. James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers, Queen's University, Department of Economics 918, Queen's University, Department of Economics.
  3. Gandolfo, Giancarlo & Petit, Maria Luisa, 1983. "The functional form of the aggregate import demand equation : Italy, 1960-1980," Economics Letters, Elsevier, Elsevier, vol. 11(1-2), pages 145-148.
  4. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2006. "Testing For Cointegration In Nonlinear Smooth Transition Error Correction Models," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 22(02), pages 279-303, April.
  5. Gallagher, Liam A & Taylor, Mark P, 2001. "Risky Arbitrage, Limits of Arbitrage, and Nonlinear Adjustment in the Dividend-Price Ratio," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 39(4), pages 524-36, October.
  6. Hansen, Bruce E. & Seo, Byeongseon, 2002. "Testing for two-regime threshold cointegration in vector error-correction models," Journal of Econometrics, Elsevier, Elsevier, vol. 110(2), pages 293-318, October.
  7. Johansen, Soren, 1992. "Testing weak exogeneity and the order of cointegration in UK money demand data," Journal of Policy Modeling, Elsevier, Elsevier, vol. 14(3), pages 313-334, June.
  8. Luis Catão & Elisabetta Falcetti, 2002. "Determinants of Argentina’s External Trade," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 19-57, May.
  9. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198288107, October.
  10. Teräsvirta, Timo & Eliasson, Ann-Charlotte, 1998. "Nonlinear error-correction and the UK demand for broad money, 1878-1993," Working Paper Series in Economics and Finance, Stockholm School of Economics 265, Stockholm School of Economics, revised 30 Nov 1998.
  11. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, Elsevier, vol. 74(1), pages 119-147, September.
  12. Anderson, Heather M, 1997. "Transaction Costs and Non-linear Adjustment towards Equilibrium in the US Treasury Bill Market," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 59(4), pages 465-84, November.
  13. Krueger,Anne O., 1983. "Exchange-Rate Determination," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521273015.
  14. Michael, Panos & Nobay, A Robert & Peel, David A, 1997. "Transactions Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(4), pages 862-79, August.
  15. Juselius, Katarina, 1992. "Domestic and foreign effects on prices in an open economy: The case of Denmark," Journal of Policy Modeling, Elsevier, Elsevier, vol. 14(4), pages 401-428, August.
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