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Simultaneous (and Recursive) Equation Systems

By Robert Dixon


give "pride of place " to Jan Tinbergen (1991, p 31). He was the first to estimate and use a system of equations to depict economic behaviour and to evaluate policy options. (Tinbergen was attempting to model the macro-behaviour of the Dutch and US economy in the twenties and early thirties.) Since that time a great deal of research effort has been devoted to the theory of estimating simultaneous equations, to the construction of large-scale macroeconometric (and microeconometric) models and to the development of algorithms which will solve such models (especially when they contain non-linearities). We are familiar with the usual single equation regression model in which one variable (y) is the dependent or determined variable and x1, x2,..., etc are the independent or determining variables. Simultaneous equation models are fundamentally different to single equation models. In simultaneous equation models there are a number of exogenous variables and many endogenous or jointly determined variables. Variables that are considered to be jointly dependent on each other while being affected by some other variables are called endogenous variables. These variables are the object of the explanation sought by a simultaneous equation system. Some endogenous variables affect the jointly dependen

Year: 2009
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