COINTEGRATION ANALYSIS ON JAPAN’S AGGREGATE IMPORT DEMAND FUNCTION: DOES DATA FREQUENCY MATTER?

Abstract

This study aims to empirically re-examine Japan’s long-run aggregate import demand function using a variety of cointegration tests. The primary contribution of this study is to compare estimates obtained from samples of quarterly, biannual, and annual data for the period 1973 to 2000. The results of bounds test and Johansen’s multivariate test show that the quantity of imports, real incomes, and relative import prices are consistently cointegrated regardless of data frequency. In contrast, the Engle-Granger’s residual-based and error correction mechanism tests reveal no cointegrating relationship in Japan’s aggregate import equation. This study thus concludes that data frequency does not affect estimates of Japan’s aggregate import demand function, but that the choice of cointegration techniques does.