Exogenous and endogenous variables: Difference between revisions

Revision as of 22:34, 4 March 2019

Revision as of 04:25, 5 March 2019

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In an [[economics|economic]] [[model (economics)|model]], an '''exogenous''' change is one that comes from outside the model and is unexplained by the model. For example, in the simple [[supply and demand]] model, a change in consumer tastes is unexplained by the model and imposes an exogenous change in demand that leads to a change in the [[economic equilibrium|equilibrium]] price. Here the '''exogenous variable''' is a [[parameter]] conveying consumer tastes. Similarly, a change in the consumer's income is given outside the model and affects demand exogenously. Put another way, an exogenous change involves an alteration of a variable that is autonomous, i.e., unaffected by the workings of the [[model (economics)|model]].

In contrast, an '''endogenous variable''' is one whose value is determined within the model. For example, in the [[liquidity preference]] model, the supply of and demand for [[money]] determine the [[interest rate]]., so the interest rate is an endogenous variable.

[[Category:Technical terminology]]