Simultaneous model and recursive model


Question 1:

Make a distinction between endogenous and exogenous variables in simultaneous equation model?

Question 2:

Write down two equations that can be solved simultaneously, determine whether they’re identified or over-identified and get the decreased form equations.

Question 3:

Can OLS be applied to the decreased form equations? Justify your answer.

Question 4:

Make a distinction between a simultaneous model and a recursive model and show clearly that OLS can be applied to recursive model.

Question 5:

What do you understand by these processes?

• Autoregressive

• Distributed lag

• Moving Average

Question 6:

Write down AR (2) process and MA (1) process.

Question 7:

Compute the (unconditional) means and variances of the dependent variables for both an AR (1) and for MA (1).

Question 8:

Make a distinction and differentiate between a fixed effect models (FEM) and an error components model (ECM)?

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Financial Econometrics: Simultaneous model and recursive model
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