Time-varying parameters of Croatian import demand

Mile Bošnjak, Vlatka Bilas () and Domagoj Raèiæ ()
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Vlatka Bilas: University of Zagreb, Faculty of Economics and Business, JF Kennedy Square 6, 10000 Zagreb, Croatia.
Domagoj Raèiæ: J.J. Strossmayer University of Osijek, Faculty of Economics in Osijek, LJ. Gaj sq. 7, 31000 Osijek, Croatia.

Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, 2019, vol. 37, issue 2, 853-872

Abstract: The paper aims to examine Croatian import demand elasticities to changes in income and relative prices while allowing time variation in parameters of import demand. Data sample consist of quarterly time series data over the period 2000 q1 -2018 q3. Following state space model with time-varying parameters approach estimates were obtained and tested. The results revealed persistent and high income elasticity of import demand in Croatia. However, the role of relative prices has changed over the observed period and eventually cannot be distinguished from zero. The findings from this research supported the hypothesis of prices convergence in Croatia towards the prices within European Monetary Union member countries. Furthermore, results found no significant effect on Croatian import demand when Croatia joined the European Union. The research results indicate that, due to a relatively high income elasticity of import demand and convergence of import prices, production of innovative and sophisticated products should be facilitated.

Keywords: import demand; income; relative prices; Kalman filter; Croatia (search for similar items in EconPapers)
JEL-codes: C13 C51 F14 F17 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:rfe:zbefri:v:37:y:2019:i:2:p:853-872

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