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 5 a0 1 a1z1 1 a2z2 1 v1.

Find the aj in terms of the bj and the pj

(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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