Suppose in a system of equation below, Y1 and Y2 are endogenous variables. Show

mathematically that the Y2 equation is exactly identified and the Y1 equation is not

identified.

Y1=a+bY2+cX1+u1

Y2=d+eY1+u2

Hint: Express these structural equations in reduced form equations. Then use the

reduced form parameter estimates to solve for the structural parameters. This is an

example of indirect least squares (ILS).