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.
Liquidity Effects on Consumers’ Imports in Trinidad and Tobago (m.2017).pdf