Adjustment Costs and Import Demand Behavior: Evidence from Canada and The United States

Journal of International Money and Finance, Vol. 16, No. 3, pp. 461-476, 1997

Posted: 25 Aug 1998 Last revised: 29 Mar 2013

See all articles by Robert A. Amano

Robert A. Amano

Bank of Canada & CREFE

Tony S. Wirjanto

University of Waterloo - School of Accounting and Finance; University of Waterloo, Department of Statistics & Actuarial Science

Date Written: 1997

Abstract

In this paper, we examine whether adjustment costs are a significant source of the observed sluggish adjustment of Canadian and US import demand. We use a simple model of a utility maximizing domestic consumer under the assumption of integrated forcing variables to examine the importance of adjustment costs. This formulation of the problem allows us to exploit the recently developed theory of cointegration to estimate the structural parameters of the model using a two-step methodology. Moreover, the formulation incorporates an element of forward-looking behaviour into the decision process; a feature that is important if one assumes adjustment costs are a significant source of persistence in import demand adjustment. The empirical results from a Euler equation imply that adjustment costs in Canada and the United States are important.

JEL Classification: C22, F10

Suggested Citation

Amano, Robert A. and Wirjanto, Tony S., Adjustment Costs and Import Demand Behavior: Evidence from Canada and The United States (1997). Journal of International Money and Finance, Vol. 16, No. 3, pp. 461-476, 1997. Available at SSRN: https://ssrn.com/abstract=6516

Robert A. Amano (Contact Author)

Bank of Canada & CREFE ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada
613-782-8827 (Phone)
613-782-7163 (Fax)

Tony S. Wirjanto

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)

HOME PAGE: http://https://uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

University of Waterloo, Department of Statistics & Actuarial Science ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)
519-746-1875 (Fax)

HOME PAGE: http://math.uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

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