ABSTRACT
Most books on econometrics start with, and exert considerable efforts investigating, single-equation models, such as demand functions, consumption functions, wage rate functions, and so on, similar to those considered in detailed in the previous chapters. However, economic phenomena are not unique. In most cases the single equations under investigation are either related with other single equations, or they are part of a wider phenomenon which may be explained by a system of equations. This chapter will introduce you to regression models with a number of interrelated equations, within which a number of variables are determined simultaneously. We will introduce the concepts step by step using a number of examples to demonstrate key issues. We need to use a bit of matrix algebra here to present some of the results in a compact fashion; however, we will keep the use of matrix algebra to a minimum and instead rely more on practical examples to illustrate key concepts. Key topics
Simultaneous equation bias
Identification
Estimation methods (single equation/system of equations)
