Abstract
Many economic theories are based on models with several equations, i.e., on systems of equations. Since these equations are not independent of each other, the interaction of the different variables has important consequences for the estimation of each equation and for the system as a whole. This chapter tackles this issue and deals with simultaneous equations models. It starts by outlining the analytical framework before turning to the possibility or not of estimating the parameters of the model, known as identification. It then presents the estimation methods relating to simultaneous equations models and the specification test proposed by Hausman. An empirical application is provided at the end of the chapter to illustrate the concepts presented in a simple way.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
The predetermined variables can thus be divided into two categories: exogenous variables and lagged endogenous variables.
- 2.
However, the OLS method can be applied in the case of triangular (or recursive) systems.
References
Basmann, R.L. (1957), Generalized Classical Method of Linear Estimation of Coefficients in a Structural Equation”, Econometrica, 25, pp. 77–83.
Davidson, R. and J.G. MacKinnon (1993), Estimation and Inference in Econometrics, Oxford University Press.
Dhrymes, P. (1973), “Restricted and Unrestricted Reduced Forms”, Econometrica, 41, pp. 119–134.
Florens, J.P., Marimoutou, V. and A. PĂ©guin-Feissolle (2007), Econometric Modeling and Inference, Cambridge University Press.
Greene, W. (2020), Econometric Analysis, 8th edition, Pearson.
Gujarati, D.N., Porter, D.C. and S. Gunasekar (2017), Basic Econometrics, McGraw Hill.
Hausman, J. (1975), “An Instrumental Variable Approach to Full-Information Estimators for Linear and Certain Nonlinear Models”, Econometrica, 43, pp. 727–738.
Hausman, J. (1978), “Specification Tests in Econometrics”, Econometrica, 46, pp. 1251–1271.
Hausman, J. (1983), “Specification and Estimation of Simultaneous Equation Models”, in Griliches, Z. and M. Intriligator (eds), Handbook of Econometrics, North-Holland, Amsterdam.
Johnston, J. and J. Dinardo (1996), Econometric Methods, 4th edition, McGraw Hill.
Klein, L.R. (1950), Economic Fluctuations in the United States, 1921–1941, John Wiley & Sons, New York.
Pindyck, R.S. and D.L. Rubinfeld (1991), Econometric Models and Economic Forecasts, McGraw-Hill.
Theil, H. (1953), “Repeated Least Squares Applied to Complete Equation Systems”, Central Planning Bureau, The Hague, Netherlands.
Theil, H. (1971), Principles of Econometrics, John Wiley & Sons, New York.
Theil, H. (1978), Introduction to Econometrics, Prentice Hall.
Zellner, A. (1962), “An Efficient Method of Estimating Seemingly Unrelated Regressions and Tests of Aggregation Bias”, Journal of the American Statistical Association, 57, pp. 500–509.
Zellner, A. and H. Theil (1962), “Three Stage Least Squares: Simultaneous Estimation of Simultaneous Equations”, Econometrica, 30, pp. 63–68.
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 2024 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Mignon, V. (2024). Simultaneous Equations Models. In: Principles of Econometrics. Classroom Companion: Economics. Springer, Cham. https://doi.org/10.1007/978-3-031-52535-3_8
Download citation
DOI: https://doi.org/10.1007/978-3-031-52535-3_8
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-031-52534-6
Online ISBN: 978-3-031-52535-3
eBook Packages: Economics and FinanceEconomics and Finance (R0)