Conclusions

Abstract

In the recent years, the study of cointegrated times series and the use error correction models have become extremely popular in the applied as well as in the theoretical econometric literature. In this field of study, the choice between a full-system based approach and a partial approach using sub-systems is not clear-cut, and is even open to debate. If some exogeneity conditions are verified, lower dimension systems are obviously, from a practical point of view, easier to handle and from a theoretical point of view, enjoy nice asymptotic properties. The empirical researcher is often confronted with the choice of running the risk of losing efficiency or losing empirical tractability. As exogeneity is essential for being able to conduct valid inference in conditional cointegrated systems, we have investigated the conditions of weak exogeneity within a particularly useful representation of cointegrated systems which is the popular error correction model.