Exogenous and endogenous variables

In an

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]

Examples

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 models

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-LM model,^[1]

^{: pp. 268–9} both the interest rate and output are endogenously determined.

References

^ ^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.
ISBN 978-0-324-66054-8
.

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[Mankiw-1] Mankiw, N. Gregory. Macroeconomics, third edition, 1997.

[Varian-2] Varian, Hal R., Microeconomic Analysis, third edition, 1992.

[Chiang-3] Chiang, Alpha C. Fundamental Methods of Mathematical Economics, third edition, 1984.

[4] ISBN 978-0-324-66054-8
.

[1]

[2]

[3]

[4]

Examples

Sub-models and models

See also

References