Liquidity effects on consumers’ imports in Trinidad and Tobago
This paper examines the effects of liquidity on the demand for imports of non-durable consumers’ goods in Trinidad and Tobago. A parsimonious vector equilibrium correction model (VEqCM) is used to test the hypotheses that liquidity has both long- and short-run effects. The multivariate cointegration approach of Johansen and Juselius (1990) is used to determine long-run relations and general to specific (Gets) modeling, Autometrics in particular, to determine system dynamic specification. Cointegration analysis reveals a long-run relation among consumers’ imports, output, liquidity and relative prices. Gets modeling also reveals significant short-run liquidity effects and furthermore asymmetric short-run foreign and domestic price effects. The VEqCM seems a sufficient approximation of the underlying data generation process, demonstrates desirable statistical properties and empirically constant parameters, encompasses the findings of previous specifications and produces reliable forecasts.
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