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Which are the endogenous variables in the model

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Reference no: EM13881346

To study the relationship between in?ation and yield on common stock, Bruno Oudet‡ used the following model:

Rbt = α1 + α2 Rst + α3 Rbt-1 + α4 Lt + α5 Yt + α6 NIS t + α7 It + u1t Rst = β1 + β2 Rbt + β3 Rbt-1 + β4 Lt + β5 Yt + β6 NIS t + β7 Et + u2t

where L = real per capita monetary base
Y = real per capita income
I = the expected rate of in?ation NIS = a new issue variable
E = expected end-of-period stock returns, proxied by lagged
stock price ratios
Rbt = bond yield
Rst = common stock returns

a. Offer a theoretical justi?cation for this model and see if your reason- ing agrees with that of Oudet.

b. Which are the endogenous variables in the model? And the exoge- nous variables?

c. How would you treat the lagged Rbt-endogenous or exogenous?

Reference no: EM13881346

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Which are the endogenous variables in the model : To study the relationship between in?ation and yield on common stock, Bruno Oudet‡ used the following model: Rbt = α1 + α2 Rst + α3 Rbt-1 + α4 Lt + α5 Yt + α6 NIS t + α7 It + u1t Rst = β1 + β2 Rbt + β3 Rbt-1 + β4 Lt + β5 Yt + β6 NIS t + β7 Et + ..
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