Partial versus full system modelling of cointegrated systems an empirical illustration

In this paper we discuss and illustrate the relative merits and pitfalls of modelling cointegrated systems in partial or in complete system set-up. We follow both the complete VAR based approach advocated by Hendry and Mizon (1993) and the partial system approach based on so-called 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 in the empirical analysis.