Question: The following model is specified:y 1 = 1 y 2 + 11 x 1 + 1 ,y 2 = 2 y

The following model is specified:y₁= γ₁y₂+ β₁₁x₁+ ε₁,y₂= γ₂y₁+ β₂₂x₂+ β₃₂x₃+ ε₂.

All variables are measured as deviations from their means. The sample of 25 observations produces the following matrix of sums of squares and cross products:

yi y2 x1 X2 X3 [20 6 4 5] 6 10 3

a. Estimate the two equations by OLS.

b. Estimate the parameters of the two equations by 2SLS. Also estimate the asymptotic covariance matrix of the 2SLS estimates.

c. Obtain the LIML estimates of the parameters of the first equation.

d. Estimate the two equations by 3SLS.

e. Estimate the reduced form coefficient matrix by OLS and indirectly by using your structural estimates from part b.

yi y2 x1 X2 X3 [20 6 4 5] 6 10 3 6 X1 4 3 5 2 3 X2 3 6 2 10 8 X3 5 7 3 8 15 3.

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