1. MACROECONOMETRICS LAB 2 – SIMULTANEOUS MODELS

2. ROADMAP What do we need simulteneous models for? – What you know from the lecture – Empirical side (w/o time dimension, really!) How to get the NEEDED results from STATA Klein model (example) How to do own structural research?

3. Simultaneous Equations Models Much of the theory based on systems of equilibrium equations: – D+S & market equilibrium – small macroeconomic model (C, I, AD) Types of equations: – behavioural – equilibrium (identities – no disturbances!) Types of variables: – egxogenous – endogenous – predetermined  PROBLEMS!!!

4. Simultaneous Equations Models Data problem – if endogenous, OLS inconsistent – if autoregressive, OLS unreliable (s.errors!) Different solutions (  econometric assumptions) – Instrumental Variables errors and exogenous variables uncorrelated – 3SLS only simultaneous autocorrelation of errors differentiated 3SLS

5. IV estimation Equation by equation – cap gen wp_plus_wg = wp+wg – ivreg c (p L1.p wp_plus_wg=year g wg t L1.p k1 L1.x ) – ivreg wp (x L1.x year=year g wg t L1.p k1 L1.x) – ivreg i (p L1.p k1= year g wg t L1.p k1 L1.x)

6. 3SLS estimation reg3 (c L1.p p wp_plus_wg) (wp x L1.x year) (i p L1.p k1), endog(wp_plus_wg x p) exog(year g wg t) 2sls reg3 (c L1.p p wp_plus_wg) (wp x L1.x year) (i p L1.p k1), endog(wp_plus_wg x p) exog(year g wg t) reg3 (c L1.p p wp_plus_wg) (wp x L1.x year) (i p L1.p k1), endog(wp_plus_wg x p) exog(year g wg t) ireg3 reg3 (c L1.p p wp_plus_wg) (wp x L1.x year) (i p L1.p k1), endog(wp_plus_wg x p) exog(year g wg t) sure