The SYSLIN Procedure |

Variables in a System of Equations |

Before explaining how to use the SYSLIN procedure, it is useful to define some terms. The variables in a system of equations can be classified as follows:

*Endogenous variables,*which are also called*jointly dependent*or*response variables,*are the variables determined by the system. Endogenous variables can also appear on the right-hand side of equations.*Exogenous variables*are independent variables that do not depend on any of the endogenous variables in the system.*Predetermined variables*include both the exogenous variables and*lagged endogenous variables,*which are past values of endogenous variables determined at previous time periods. PROC SYSLIN does not compute lagged values; any lagged endogenous variables must be computed in a preceding DATA step.*Instrumental variables*are predetermined variables used in obtaining predicted values for the current period endogenous variables by a first-stage regression. The use of instrumental variables characterizes estimation methods such as two-stage least squares and three-stage least squares. Instrumental variables estimation methods substitute these first-stage predicted values for endogenous variables when they appear as regressors in model equations.

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