Estimating Supply and Demand Functions in International Trade: A Multivariate Cointegration Analysis for Germany

In this paper aggregate supply and demand functions for Germany's imports and exports are estimated for the period 1975:1-1999:4. Previous studies are extended in two regards: First, the multivariate estimation technique of Johansen (1988, 1991) is employed, which helps to avoid the potential bias of the predominately used single-equation approaches. Second, structural error-correction models are estimated for the import and export market. This allows for conclusions about the short-run response of buyers and sellers in both markets to changes in their forcing variables.