Technology Shocks and Cointegration in Quadratic Models of the Firm.

In two quadratic models of a firm, it is shown that, if the firm's production function is not separable in its arguments, then the presence of any unit root technology shock will prevent factor inputs from being cointegrated with input prices. Absent integrated technology shocks, there will be one cointegrating vector for every quasi-fixed factor held by the firm, thereby providing one possible rationale for multiple cointegrating vectors in multivariate time series systems. The parameters of these cointegrating vectors may be used to recover the parameters of the static factor demand functions obeyed by the firm. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.