IDEAS home Printed from
   My bibliography  Save this paper

Co-Integration, Aggregate Consumption, and the Demand For Imports: A Structural Econometric Investigation


  • Richard H. Clarida


This paper uses a two-good version of Hall's (1978) representative agent, permanent income model to derive a structural import demand equation for nondurable consumer goods. Under the identification restriction that taste shocks are stationary, the model is shown to imply that log imports, log domestic goods, and the log relative price of imports are co-integrated. The data decisively reject the null hypothesis that imports, the relative price of imports, and the consumption of home goods are not co-integrated. We employ the non-linear least squares technique recently proposed by Phillips and Loretan (1990> to estimate the parameters of the import demand equation. The long-run price elasticity of import demand is estimated to be -0.95. The elasticity of import demand with respect to a permanent increase in real spending is estimated to be 2.20. These estimates fall within the range reported in studies by Helkie and Hooper (1986), Cline (1989), and the many studies surveyed by Goldstein and Kahn (1985) The message of this paper is that, at least for non-durable consumer goods, it is possible to interpret the traditional import demand equation as a co-integrating regression, and to interpret the price and expenditure elasticities estimated from such a trade equation as a co-integrating vector. Estimates of the co-integrating vector can be used to recover estimates of the utility parameters of the representative household. The similarity between the OLS and Phillips-Loretan estimates of the parameters suggests that the simultaneous equation bias is not large.

Suggested Citation

  • Richard H. Clarida, 1991. "Co-Integration, Aggregate Consumption, and the Demand For Imports: A Structural Econometric Investigation," NBER Working Papers 3812, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3812
    Note: ITI IFM

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Peter C. B. Phillips & Mico Loretan, 1991. "Estimating Long-run Economic Equilibria," Review of Economic Studies, Oxford University Press, vol. 58(3), pages 407-436.
    2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    3. Hodrick, Robert J., 1989. "Risk, uncertainty, and exchange rates," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 433-459, May.
    4. Clinton Shiells & Robert Stern & Alan Deardorff, 1989. "Estimates of the elasticities of substitution between imports and home goods for the United States: Reply," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 125(2), pages 371-374, June.
    5. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
    6. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:3812. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.