Definition 192

In a model of M simultaneous equations, in order for an equation to be identified, the number of predetermined variables excluded from the equation must not be less than the number of endogenous variables included in that equation less 1, that is,

If K - k = m - 1, the equation is just identified, but if K - k > m - 1, it is overidentified.

In exercise 19.1 the reader is asked to prove that the preceding two definitions of identification are equivalent.

To illustrate the order condition, let us revert to our previous examples.

5The term order refers to the order of a matrix, that is, the number of rows and columns present in a matrix. See App. B.

CHAPTER NINETEEN: THE IDENTIFICATION PROBLEM 749

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