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

Author

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  • Hans Christian Kongsted

    (Institute of Economics, University of Copenhagen)

Abstract

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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    File URL: http://www.econ.ku.dk/english/research/publications/wp/1998/9822.pdf/
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    Citations

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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.
    2. Heino Bohn Nielsen, 2002. "An I(2) Cointegration Analysis of Price and Quantity Formation in Danish Manufactured Exports," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(5), pages 449-472, December.

    More about this item

    Keywords

    pricing-to-market; long-run price trends; cointegration; second-order non-stationarity;
    All these keywords.

    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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