Question: 7.9 Consider the following simultaneous equation model: Y A AY A X u 1 1 22 3 1 1 t t tt (1) Y B

7.9 Consider the following simultaneous equation model: Y A AY A X u 1 1 22 3 1 1 t t tt (1) Y B BY B X u 2 1 21 3 2 2 t t tt (2) 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 identifi ed?

(c) For the identifi ed equation, which method will you use to obtain the structural coeffi cients?

(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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