Reference no: EM131615469

Consider the following simultaneous equation model where Y₁ and Y₂ are endogenous variable while X₁, X₂, X₃ and X₄ are exogenous variables:

Y_1t = α₁ + α₂Y_2t + α₃X_1t + α₄X_2t + u_1t        (1)

Y_2t = β₁ + β₂Y_1t + β₃X_3t + β₄X_4t + u_2t    (2)

We can conclude that

a) Equation (1) is just identified while Equation (2) is over-identified

b) Both equations (1) and (2) are unidentified.

c) Equation (1) is unidentified while Equation (2) is just identified.

d) Both equations (1) and (2) are over-identified