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Liquidity effects on consumers’ imports in Trinidad and Tobago

Michael Browne ()

No 2016-005, Working Papers from The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting

Abstract: This paper examines the effects of liquidity on the demand for imports of non-durable consumers’ goods in Trinidad and Tobago. A parsimonious vector equilibrium correction model (VEqCM) is used to test the hypotheses that liquidity has both long- and short-run effects. The multivariate cointegration approach of Johansen and Juselius (1990) is used to determine long-run relations and general to specific (Gets) modeling, Autometrics in particular, to determine system dynamic specification. Cointegration analysis reveals a long-run relation among consumers’ imports, output, liquidity and relative prices. Gets modeling also reveals significant short-run liquidity effects and furthermore asymmetric short-run foreign and domestic price effects. The VEqCM seems a sufficient approximation of the underlying data generation process, demonstrates desirable statistical properties and empirically constant parameters, encompasses the findings of previous specifications and produces reliable forecasts.

Keywords: Trinidad and Tobago; imports; non-durable consumers’ goods; liquidity; error correction model; cointegration; exogeneity; systems modeling; systems forecasts (search for similar items in EconPapers)
JEL-codes: F10 F14 F40 F41 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2016-05
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