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The degree of independence in European goods markets : An I(2) analysis of German and Norwegian trade data

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Abstract

It is almost common knowledge that foreign trade in Europe is characterized by an acceptance of prices set by the world market. Coupled with a constant profit share in domestic sectors this makes European exports vulnerable to vagaries of international demand and prices as well as to crowding out in the wake of shocks to supply. These circumstances have been used to legitimate special measures geared towards shielding the sector from adverse shocks and general preferential treatment in the past. In fact econometric evidence is not totally at odds with this view. However, neither exports in a large European economy like Germany nor in a small open one, like Norway, are characterized by price taking behavior. On the contrary, both nations show strong evidence of monopolistic power in the process governing external prices, implying that supply shocks to a large extent can be passed on to prices. On the other hand exports seem to be heavily subject to the vicissitudes of international trade, a feature compatible with exports determined by demand ex post for prices fixed ex ante.

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  • Roger Hammersland, 2004. "The degree of independence in European goods markets : An I(2) analysis of German and Norwegian trade data," Working Paper 2004/19, Norges Bank.
  • Handle: RePEc:bno:worpap:2004_19
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    File URL: http://www.norges-bank.no/globalassets/upload/import/publikasjoner/arbeidsnotater/pdf/arb-2004-19.pdf
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    References listed on IDEAS

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    1. Johansen, Soren, 1992. "Testing weak exogeneity and the order of cointegration in UK money demand data," Journal of Policy Modeling, Elsevier, vol. 14(3), pages 313-334, June.
    2. Johansen, Søren, 1995. "A Stastistical Analysis of Cointegration for I(2) Variables," Econometric Theory, Cambridge University Press, vol. 11(01), pages 25-59, February.
    3. Paruolo, Paolo, 1996. "On the determination of integration indices in I(2) systems," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 313-356.
    4. Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233.
    5. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    6. Rahbek, Anders & Christian Kongsted, Hans & Jorgensen, Clara, 1999. "Trend stationarity in the I(2) cointegration model," Journal of Econometrics, Elsevier, vol. 90(2), pages 265-289, June.
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    Cited by:

    1. Roger Hammersland, 2004. "Large T and small N : A three-step approach to the identification of cointegrating relationships in time series models with a small cross-sectional dimension," Working Paper 2004/15, Norges Bank.

    More about this item

    Keywords

    Polynomial Cointegration; Higher Order Non-Stationarity Monopolistic Competition; Exports;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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