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Time-Varying Elasticities of Import Demand: the Cases of Czech Republic and Hungary

This paper aims to examine price and income elasticity of import demand in Czech Republic and Hungary while allowing parameters of import demand to vary over time. Research sample consists of quarterly time series data the first quarter of 1996 to the third quarter of 2018. The results were obtained following state space model with time-varying parameters approach. The results revealed import demand elastic to changes in income in both countries while the elasticity was found to be higher in Hungary comparing to Czech Republic. Elasticity of import demand to changes relative prices were found in Hungary while in case of Czech Republic the price elasticity estimates indicated convergence of prices. Based on the empirical results from this research, the paper brings country-specific policy implications.

Import demand, income, relative prices, Kalman filter

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