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.