Consider the following two-equation model:
Y1t = A1 + A2Y2t + A3X1t + ult
Y2t = B1 + B2Y1t + B3X2t + u2t
where the Y's are the endogenous variables, the X's the exogenous variables, and the u's the stochastic error terms.
a. Obtain the reduced form regressions.
b. Determine which of the equations is identified.
c. For the identified equation, which method of estimation would you use and why?
d. Suppose, a priori, it is known that A3 = 0. How would your answers to the preceding questions change? Why?