guys

I am trying to estimate the simultaneous equations model with instruments in STATA.

I have two equations such as:

inflation = expected_inflation + output_gap + oil_price + gas_price output_gap = expected_gap + exchange_rate + interest_rate + oil_price + gas_price

I assume that oil and gas prices are exogenous and want to instrument them by its lags.

I guess I should use code like this:

reg3 (inf exp_inf gap oil gas) (gap exp_gap real_i reer oil gas), inst(oil gas)

However it gives me error: Equation is not identified -- does not meet order conditions

Do you have any ideas what should I do?

I am trying to estimate the simultaneous equations model with instruments in STATA.

I have two equations such as:

inflation = expected_inflation + output_gap + oil_price + gas_price
output_gap = expected_gap + exchange_rate + interest_rate + oil_price + gas_price

I assume that oil and gas prices are exogenous and want to instrument them by its lags.

I guess I should use code like this:

reg3 (inf exp_inf gap oil gas) (gap exp_gap real_i reer oil gas), inst(oil gas)

However it gives me an error:

Equation is not identified -- does not meet order conditions

Do you have any ideas what should I do?