Econometrica: Oct, 1962, Volume 30, Issue 4

Prediction from Simultaneous Equation Systems and Wold's Implicit Causal Chain Model

https://doi.org/0012-9682(196210)30:4<801:PFSESA>2.0.CO;2-Z
p. 801-811

A. M. Kshirsagar

According to Wold, information on some of the variables at time t cannot be used for prediction of the values of the remaining variables at t, in a simultaneous equation system. This, however, is not the case with his implicit casual chain model. This paper considers the stochastic processes underlying the two models, uses the theory of canonical correlation to discuss Wold's criticism, and suggests the type of additional information necessary to remove these objections. It further shows how both these models are complementary to each other.