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Interrelation, Structural Changes and Cointegration in a Model for Manufacturing Demand in the Netherlands

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  • Franz C. PALM

    (University of Limburg)

  • Gerard A. PFANN

    (University of Limburg)

Abstract

This paper is concerned with dynamic factor demand systems. First, for the intertemporal expected profit maximization problem gi- ven quadratic adjustment costs, it is shown that interrelations between factor inputs result from specific characteristics of the innovations in the technology - not from substitution or adjustment costs trade-off possibilities. Second, in line with the Lucas critique, the impact of a structural change in the process of the explanatory variables on the factor demand decision rules is analyzed. Third, the non-stationarity of the factor demand series can be accounted for by that of relative factor prices when demand and price series are cointegrated. The model which allows for structural changes in the processes of the explanatory variables and for cointegration is applied to quarterly data for manufacturing in the Netherlands for the period 1971.1 - 1984. IV.

Suggested Citation

  • Franz C. PALM & Gerard A. PFANN, 1991. "Interrelation, Structural Changes and Cointegration in a Model for Manufacturing Demand in the Netherlands," Discussion Papers (REL - Recherches Economiques de Louvain) 1991031, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvre:1991031
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    File URL: http://www.jstor.org/stable/40723957
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    Cited by:

    1. Escribano, Alvaro & Pfann, Gerard A., 1998. "Non-linear error correction, asymmetric adjustment and cointegration," Economic Modelling, Elsevier, vol. 15(2), pages 197-216, April.

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