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Identifying the source of dynamics in disaggregated import data
Author(s) -
Kasa Kenneth
Publication year - 1998
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/(sici)1099-1255(199805/06)13:3<305::aid-jae468>3.0.co;2-u
Subject(s) - supply side , economics , demand side , econometrics , dynamics (music) , supply and demand , autocorrelation , microeconomics , statistics , mathematics , physics , acoustics
This paper uses Kennan's (1988) model to separately identify supply‐side and demand‐side dynamics in US import data. Dynamics arise from both autocorrelated shocks to supply‐ and demand‐side fundamentals, and from lagged adjustment to these shocks. The model consists of a pair of partial adjustment models in which consumers and producers each attempt to follow a stochastic target level of imports subject to a quadratic adjustment cost. The model is applied to quarterly data on US imports of seven narrowly defined commodities: Autos, Beer, Cameras, Wine, Cigars, Tea, and Soap. Two main results emerge. First, adjustment costs are important on both sides of the market. Second, supply‐side adjustment costs are larger than demand‐side adjustment costs. © 1998 John Wiley & Sons, Ltd.