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 prod uction function is not separable in its arguments, then the presence o f 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 he ld by the firm, thereby providing one possible rationale for multiple cointegrating vectors in multivariate time series systems. The paramet ers of these cointegrating vectors may be used to recover the paramete rs of the static factor demand functions obeyed by the firm.