Exclusion restrictions are said to be imposed in a two-equation simultaneous equations model if it is assumed that:
A)certain exogenous variables do not appear in the first equation and others are absent from the second equation.
B)certain endogenous variables do not appear in the first equation and others are absent from the second equation.
C)the error terms in each equation is correlated with the exogenous variables.
D)the error terms in each equation is uncorrelated with the exogenous variables.

Question

Quizplus · Accepted Answer

Exclusion restrictions refer to the assumption that certain exogenous variables are excluded from one equation but may appear in another within a simultaneous equations model. This helps in identifying the model by creating unique instruments for estimation.

Exclusion Restrictions Are Said to Be Imposed in a Two-Equation