Hello folks, I have a question about how IRIS handles endogenous regressors that are contemporaneous to other transition variable/s. An example model:
X1_t = beta1 * X1_t1 + beta2 * X2_t + e1_t
X2_t = e2_t
Y1_t = X1_t;
Y2_t = X2_t;
When using the 'sspace' function to extract the original system, the transition matrix is the following:
T = [ .1 0 .05;
0 0 0;
1 0 0]
According to this transition matrix X1 does not depend on X2. How does IRIS handles these kinds of relationships? I don't seem to understand how the system matrices are connecting these variables.
Thank you!
