Structural Equation Modelling

Consider the following model :

\begin{aligned} Crime &= α_0 + γ_1Police + α_1Unemp + α_2Income + α_3Gini + u_1 &(1) \\ Police &= β_0 + γ_2Crime + β_1Income + β_2Pub + u_2 &(2) \end{aligned}

where for suburb i, Crime is the crime rate (criminal cases per thousand residents),Police is the size of the police force, Unemp is the unemployment rate, Income is the median income of households, Gini is the Gini coefficient (a measure of inequality), and Pub is the number of pubs. Assume that all parameters are significantly different from zero. Only Crime and Police are jointly determined by this system.

I have to estimate these equations using SEM.

1)Can anyone help me in determining which equation here is identified and why? 2)Am I right to say that crime and police are both endogenous?

Any help here would be highly appreciated. Thank you very much.

• Can anyone please help me out at least in giving me some idea as to how I approach this problem? Commented Nov 3, 2015 at 16:33