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Multivariate Cointegration and Error Correction Models: An Application to Manufacturing Activity in Australia

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  • Smith, Jeremy
  • Hagan, Jim

Abstract

This paper uses the Johansen multivariate cointegration procedure to test for the existence of long-run (cointegrating) relationships between employment, output, output prices, input prices and wages for the Australian manufacturing sector using quarterly data from 1975 until 1988. Three cointegrating vectors are found. Input prices do not appear in any of the cointegrating vectors and, both input prices and output prices can be regarded as being weakly exogenous to the system of equations. Using these long-run relationships, three short-run error correction models are built. The results from these short-run models suggest that wages have contributed substantially to movements in employment, while output plays only a small role in determining employment in both the short- and long-run. Copyright 1993 by Scottish Economic Society.

Suggested Citation

  • Smith, Jeremy & Hagan, Jim, 1993. "Multivariate Cointegration and Error Correction Models: An Application to Manufacturing Activity in Australia," Scottish Journal of Political Economy, Scottish Economic Society, vol. 40(2), pages 184-198, May.
  • Handle: RePEc:bla:scotjp:v:40:y:1993:i:2:p:184-98
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    Cited by:

    1. Nanang, David M., 2010. "Analysis of export demand for Ghana's timber products: A multivariate co-integration approach," Journal of Forest Economics, Elsevier, vol. 16(1), pages 47-61, January.
    2. Abbas Valadkhani, 2002. "Identifying Australia’s High Employment Generating Industries," School of Economics and Finance Discussion Papers and Working Papers Series 119, School of Economics and Finance, Queensland University of Technology.
    3. Vasilescu, Denisa Maria & Aparaschivei, Larisa & Roman, Mihai Daniel, 2012. "Employment in Romania: evidence from a panel data analysis," MPRA Paper 38388, University Library of Munich, Germany.

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