PARTIAL VERSUS FULL SYSTEM MODELING OF COINTEGRATED SYSTEMS - AN EMPIRICAL ILLUSTRATION

In this paper we discuss and illustrate the relative merits and pitfal ls of modelling cointegrated systems in partial or in complete system set-up. We follow both the complete VAR based approach advocated by He ndry and Mizon (1993) and the partial system approach based on so-call ed structural error correction models proposed by Boswijk (1991, 1992) . The issue of exogeneity is discussed and illustrated using quarterly data for Belgian aggregate imports. Several economically interesting questions related to price effects in international trade are raised i n the empirical analysis.