We all know that structural simultaneous equations models (SEM’s) played a key role in the historical development of Econometrics as a discipline. An understanding of these models and the associated estimators is an important part of our training, whether we use these models or not in our day-to-day work. The issues that they raise have helped shape much of our current econometric tool-kit.
I've posted on this topic before, but here I'm going to look at the results of applying various SEM estimators using the EViews econometrics package. In particular, I'll use a simple well-known structural model to illustrate the estimates that are obtained when different “limited information” and “full information” estimators are used.
Then, I'll take a look at using an estimated SEM for the purposes of simulating the effect of a policy shock.