Question: (i) In the model with one endogenous explanatory variable, one exogenous explanatory variable, and one extra exogenous variable, take the reduced form for y2, (15.26),

(i) In the model with one endogenous explanatory variable, one exogenous explanatory variable, and one extra exogenous variable, take the reduced form for y2, (15.26), and plug it into the structural equation (15.22). This gives the reduced form for y1:
y1 = α0 + α1z1 + α2z2 + v1,
Find the α in terms of the B and the TT..
(ii) Find the reduced form error, v1, in terms of u1, v2, and the parameters.
(iii) How would you consistently estimate the aj?

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i ii iii Plugging 1526 into 1522 and rearranging gives y Bo B170 M1Z1 A2Z2 B2Z1 U BOB170 B7 BZ ... View full answer

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