Introduction to Simultaneous Equations Models
The purpose of this chapter is to provide an informal introduction to the unique estimation problems arising in economic models where the values of several variables are determined simultaneously. Some examples include the usual Keynesian and monetary macroeconomic models as well as supply and demand equations of microeconomic markets. The models addressed to this point are appropriate when the conditional expectation, E(y X), is approximately linear and the stochastic process which generates the regressor X operates independently of the error e t. This assumption allows the determination of X to be treated independently of y. In some cases, however, it is more appropriate to treat X and y as jointly determined.
KeywordsExogenous Variable Endogenous Variable Simultaneous Equation Simultaneous Equation Model Reduce Form Equation
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