# Structural estimation

**Structural estimation** is a technique for estimating deep "structural"

^{[2]}

The difference between a structural parameter and a reduced-form parameter was formalized in the work of the Cowles Foundation.^{[3]}^{[failed verification]} A structural parameter is also said to be "policy invariant" whereas the value of reduced-form parameter can depend on exogenously determined parameters set by public policy makers. The distinction between structural and reduced-form estimation within "microeconometrics" is related to the Lucas critique of reduced-form macroeconomic policy predictions.

## Structured and reduced form models

When the Cowles Commission introduced the term "reduced form" it was used to define a set of equations where the "left-hand"

^{[4]}

The original distinction between structure and reduced-form was between the underlying system and the direct relationship between observables implied by the system.

Different combinations of structural parameters can imply the same reduced-form parameters, so structural estimation must go beyond the direct relationship between variables.^{}[3]^{[5]}

Many economists now use the term "reduced form" to mean statistical estimation without reference to a specific economic model. For example, a regression is often called a reduced-form equation even when no standard economic model would generate it as the reduced form relationship between variables.

These conflicting distinctions between structural and reduced form estimation arose from the increasing complexity of economic theory since the formalization of simultaneous equations estimation. A structural model often involves sequential decision-making under uncertainty or strategic environments where beliefs about other agents' actions matter. Parameters of such models are estimated not with regression analysis but non-linear techniques such as

## See also

## Notes

**^**Reiss & Wolak 2007, p. 4282.**^**Reiss & Wolak 2007, p. 4411.- ^
^{a}^{b}Reiss & Wolak 2007. **^**Reiss & Wolak 2007, p. 4293.**^**Keane 2010.

## References

- Angrist, Joshua D; Pischke, Jörn-Steffen (2010). "The Credibility Revolution in Empirical Economics: How Better Research Design is Taking the Con out of Econometrics" (PDF).
*Journal of Economic Perspectives*.**24**(2). American Economic Association: 3–30.ISSN 0895-3309. - Keane, Michael P. (2010). "Structural vs. atheoretic approaches to econometrics".
*Journal of Econometrics*.**156**(1). Elsevier BV: 3–20. .

- Reiss, Peter C.; Wolak, Frank A. (2007). "Chapter 64 Structural Econometric Modeling: Rationales and Examples from Industrial Organization" (PDF).
*Handbook of Econometrics*. Elsevier.ISSN 1573-4412. - Rust, John (2014). "The Limits of Inference with Theory: A Review of Wolpin (2013)".
*Journal of Economic Literature*.**52**(3). American Economic Association: 820–850. .