In an economicmodel, an exogenous variable is one whose measure is determined outside the model and is imposed on the model, and an exogenous change is a change in an exogenous variable.[1]: p. 8 [2]: p. 202 [3]: p. 8
In contrast, an endogenous variable is a variable whose measure is determined by the model. An endogenous change is a change in an endogenous variable in response to an exogenous change that is imposed upon the model.[1]: p. 8 [3]: p. 8
The term 'endogeneity' in econometrics has a related but distinct meaning. An endogenous random variable is correlated with the error term in the econometric model, while an exogenous variable is not.[4]
In the LM model of interest rate determination,[1]: pp. 261–7 the supply of and demand for money determine the interest rate contingent on the level of the money supply, so the money supply is an exogenous variable and the interest rate is an endogenous variable.
Sub-models and modelsEdit
An economic variable can be exogenous in some models and endogenous in others. In particular this can happen when one model also serves as a component of a broader model. For example, the IS model of only the goods market[1]: pp. 250–260 derives the market-clearing (and thus endogenous) level of output depending on the exogenously imposed level of interest rates, since interest rates affect the physical investment component of the demand for goods. In contrast, the LM model of only the money market takes income (which identically equals output) as exogenously given and affecting money demand; here equilibrium of money supply and money demand endogenously determines the interest rate. But when the IS model and the LM model are combined to give the IS-LM model,[1]: pp. 268–9 both the interest rate and output are endogenously determined.
exogenous, endogenous, variables, term, biology, endogeny, biology, term, econometrics, endogeneity, econometrics, other, uses, exogeny, economic, model, exogenous, variable, whose, measure, determined, outside, model, imposed, model, exogenous, change, change. For the term in biology see Endogeny biology For the term in econometrics see Endogeneity econometrics For other uses see Exogeny In an economic model an exogenous variable is one whose measure is determined outside the model and is imposed on the model and an exogenous change is a change in an exogenous variable 1 p 8 2 p 202 3 p 8 In contrast an endogenous variable is a variable whose measure is determined by the model An endogenous change is a change in an endogenous variable in response to an exogenous change that is imposed upon the model 1 p 8 3 p 8 The term endogeneity in econometrics has a related but distinct meaning An endogenous random variable is correlated with the error term in the econometric model while an exogenous variable is not 4 Contents 1 Examples 2 Sub models and models 3 See also 4 ReferencesExamples EditIn the LM model of interest rate determination 1 pp 261 7 the supply of and demand for money determine the interest rate contingent on the level of the money supply so the money supply is an exogenous variable and the interest rate is an endogenous variable Sub models and models EditAn economic variable can be exogenous in some models and endogenous in others In particular this can happen when one model also serves as a component of a broader model For example the IS model of only the goods market 1 pp 250 260 derives the market clearing and thus endogenous level of output depending on the exogenously imposed level of interest rates since interest rates affect the physical investment component of the demand for goods In contrast the LM model of only the money market takes income which identically equals output as exogenously given and affecting money demand here equilibrium of money supply and money demand endogenously determines the interest rate But when the IS model and the LM model are combined to give the IS LM model 1 pp 268 9 both the interest rate and output are endogenously determined See also EditCambridge capital controversyReferences Edit a b c d e Mankiw N Gregory Macroeconomics third edition 1997 Varian Hal R Microeconomic Analysis third edition 1992 a b Chiang Alpha C Fundamental Methods of Mathematical Economics third edition 1984 Wooldridge Jeffrey M 2009 Introductory Econometrics A Modern Approach Fourth ed Mason South Western p 88 ISBN 978 0 324 66054 8 nbsp This economic term article is a stub You can help Wikipedia by expanding it vte Retrieved from https en wikipedia org w index php title Exogenous and endogenous variables amp oldid 1174809009, wikipedia, wiki, book, books, library,
