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.