Sign In Sign Up Ask an AI advisor
rachel2735
rachel2735
12.12.2019 • 
Mathematics

Consider the following system of demand and supply equations: demand : q = α0 + β1p + u1 (1) supply : q = β2p + γz + u2 (2) where q and p are random endogenous variables. (a) show that the reduced form equations can be expressed as q = π10 + π11z + v1 (3) p = π20 + π21z + v2 (4) express π10, π20, π11, and π21 in terms of the parameters of the structural equations in (1) and (2). (b) use the estimates of π10, π20, π11, and π21 in (3) and (4) to solve for the parameters of the structural equations in (1) and (2). (c) does this mean that both (1) and (2) are identified? why? what is the problem of estimating (1) or (2) directly using ols?

Solved
Show answers

Ask an AI advisor a question

I want advice