In this model the ys are the endogenous variables and the, Macroeconomics

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In this model the ys are the endogenous variables and the

Question: Consider the following simultaneous equation model:

Y_1t = A₁ + A₂Y_2t + A₃Y_3t + u_1t

Y_2t = B₁ + B₂Y_2t + A₃Y_3t + u_2t

In this model the Ys are the endogenous variables and the Xs are the exogenous variables and the us are stochastic error terms.

(a) Obtain the reduced form regressions.

(b) Which of the above equations is identified?

(d) Suppose it is known a priori that A3 is zero. Will this change your answer to the preceding questions? Why?

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Macroeconomics: In this model the ys are the endogenous variables and the

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Macroeconomics: In this model the ys are the endogenous variables and the

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