An I(2) Cointegration Analysis of Price and Quantity Formation in Danish Manufactured Exports

Heino Bohn Nielsen
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Heino Bohn Nielsen: Institute of Economics, University of Copenhagen

No 01-01, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: The long-run and short-run structure of the Danish manufacturing export sector is analyzed within a cointegrated vector autoregressive model. The price variables of the analysis can be characterized as integrated of second order, I(2), but long-run homogeneity seems to cancel the I(2)-trend allowing the analysis of a transformed data set to take place within the cointegrated I(1) framework. Two long-run relations are found and identified as a demand-relation for Danish exports and a polynomially cointegrated price relation. In the price formation a large weight to foreign prices and an effect from the rate of inflation to the steady-state markup are found. The latter effect is interpreted as an element of caution in the price setting in an inflationary environment. To characterize the short-run behavior of the Danish export-sector a structural representation of the model is developed

Keywords: Cointegration; I(2); Export Pricing; Market-shares; Small Open Economy (search for similar items in EconPapers)
JEL-codes: C32 F14 F4 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2001-01
New Economics Papers: this item is included in nep-ets
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Citations: View citations in EconPapers (2)

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