Distinguish between endogenous and exogenous variables, Financial Econometrics

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Question:

(a) Distinguish between endogenous and exogenous variables in a simultaneous equation model?

b) Write down two equations which can be solved simultaneously, determine whether they are identified or over-identified and get the reduced form equations.

c) Can OLS be applied to the reduced form equations? Justify your answer.

d) Distinguish between a simultaneous model and a recursive model and show clearly that OLS can be applied to a recursive model.

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