Introduction

Abstract

An econometric model of an economy consists of a large number of structural equations and identities specified on the basis of the model builder’s theoretical knowledge and experience of the economy concerned. Each structural equation represents one aspect of the structure of the economic system and each identity represents either a definition or an equilibrium condition or an accounting equality. The set of all structural equations of a model is called the structural form. The structural form can be manipulated to reduced form where each endogenous variable can be expressed as a function of the lagged endogenous and exogenous variables and the stochastic disturbance terms of the original structural equations.