Brian Romanchuk — Primer: Exogenous Versus Endogenous Variables

This primer explains the concept of endogenous variables versus exogenous variables, as those terms are used in economics. Although the distinction between endogenous and exogenous appears simple, there are a lot of subtleties involved when the conversation turns to the real economy and not a particular mathematical model. I illustrate how the same variable can be either exogenous or endogenous, depending upon the needs of the modeller. The example used is critically important to bond investors – the policy rate (e.g., the Fed Funds rate). I also comment on these concepts as used in the analysis of fiscal policy.

Bond Economics
Primer: Exogenous Versus Endogenous Variables
Brian Romanchuk