An empirical analysis on the stability of Japan's aggregate import demand function

This paper empirically analyzes the stability of the Japanese import demand function based on the concept of cointegration. The standard cointegration tests and the test developed by Gregory and Hansen (1996) are performed. T hese empirical results do not support the presence of a stable cointegratin g relation among real GDP, real imports and relative import prices. Thus, w e cannot say that there is a stable import demand function in Japan during the period analyzed. As a result, stimulation of domestic business conditio ns in Japan will not necessarily link to the quantity of imports. This is a n important finding from the viewpoint of Japanese economic policy. (C) 200 1 Elsevier Science B.V. All rights reserved.