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An I(2) Cointegration Analysis of Small-Country Import Price Determination


  • Hans Christian Kongsted

    (Institute of Economics, University of Copenhagen)


This 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.

Suggested Citation

  • Hans Christian Kongsted, 1998. "An I(2) Cointegration Analysis of Small-Country Import Price Determination," Discussion Papers 98-22, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:9822

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    References listed on IDEAS

    1. Obstfeld, Maurice & Taylor, Alan M., 1997. "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited," Journal of the Japanese and International Economies, Elsevier, vol. 11(4), pages 441-479, December.
    2. Weir, David R., 1984. "Life Under Pressure: France and England, 1670–1870," The Journal of Economic History, Cambridge University Press, vol. 44(01), pages 27-47, March.
    3. Chevet, Jean-Michel & Saint-Amour, Pascal, 1992. "L'intégration des marchés du blé en France aux XVIIIe et XIXe siècles," Cahiers d'Economie et de Sociologie Rurales (CESR), INRA (French National Institute for Agricultural Research), vol. 22.
    4. Persson,Karl Gunnar, 1999. "Grain Markets in Europe, 1500–1900," Cambridge Books, Cambridge University Press, number 9780521650960, May.
    5. Flandreau, Marc, 1996. "Adjusting to the Gold Rush: Endogenous Bullion Points and the French Balance of Payments 1846-1870," Explorations in Economic History, Elsevier, vol. 33(4), pages 417-439, October.
    6. B.M. Roehner, 1994. "Les mécanismes d'interdépendance spatiale entre marchés du blé au XIXe siècle," Histoire, économie & société, Programme National Persée, vol. 13(2), pages 343-394.
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    Cited by:

    1. Oliver Holtemöller, 2004. "A monetary vector error correction model of the Euro area and implications for monetary policy," Empirical Economics, Springer, vol. 29(3), pages 553-574, September.

    More about this item


    pricing-to-market; long-run price trends; cointegration; second-order non-stationarity;

    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; State Space Models
    • 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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