Problem 11-26 

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Two simultaneous relationships consist of two endogenous variables and two
exogenous variables.  These variables exist in the file (1126.wk1).  The Following
relationship is expected to exist:
  EN1t = a0 + a1EN2t + a2EX1t + e1t   EN2t = b0 + b1EN1t + b2EX2 + e2t  
a) Suggest a method for estimating these relationships and whether they are exactly,
    under, or overidentified. (Hints: VAR model)
 
b) Fit OLS models to each of these relationships. (Eviews)
 
c) Perform 2SLS. (Eviews)
 
d) Fully interpret the coefficients of the two simultaneous equations.
 
e) Verify that the error terms of the 2SLS are uncorrelated.  IF not, then recommend a
    better estimation procedure. (include in part c)
 
f) Compare the fits of the reduced-form equations and the 2SLS estimates.
    Which appears to better fit the endogenous variables?
 

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