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

Hans Christian Kongsted
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Hans Christian Kongsted: Institute of Economics, University of Copenhagen

No 98-22, Discussion Papers from University of Copenhagen. Department of Economics

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.

Keywords: pricing-to-market; long-run price trends; cointegration; second-order non-stationarity (search for similar items in EconPapers)
JEL-codes: C32 C51 C52 F40 (search for similar items in EconPapers)
Pages: 27 pages
Date: 1998-12
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:9822

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