An I(2) cointegration analysis of small-country import price determination

Hans Christian Kongsted

Econometrics Journal, 2003, vol. 6, issue 1, 53-71

Abstract: This paper develops a procedure for testing hypotheses on the full set of cointegration parameters of the I(2) model. It applies this procedure 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--1995 yields a fully specified long-run structure of the I(2) model 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. Copyright Royal Economic Society, 2003

Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:ect:emjrnl:v:6:y:2003:i:1:p:53-71

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