Exogenous Variable

An Exogenous Variable is a variable whose value are not affected or influenced by of other variables in the system.

Context:
- It can also be defined an independent variable determined "outside" and unexplained by the model.
- It can (typically) influence endogenous variable and can also affect functional relationships in the model.
Example(s):
- Consumption, Government Spending , Exports, Imports, Interest Rate are exogenous variables in the IS-LM Model.
- Income and Consumer Preference are exogenous variables in the supply and demand model.
- In the expression [math]\displaystyle{ y=f(x,y)+u }[/math] where [math]\displaystyle{ u }[/math] is an exogenous variable whose value is measure outside the model, a change in [math]\displaystyle{ u }[/math] value will shift the [math]\displaystyle{ (y, f(x,y)) }[/math] curve left or right.
- …
Counter-Example(s)
See: Endogeneity, Exogeny, Reverse Causation, Econometrics, Linear Regression, Economic Multiplier.

References

2020

(Wikipedia, 2020) ⇒ https://en.wikipedia.org/wiki/Exogenous_and_endogenous_variables Retrieved:2020-11-20.
- In an economic model, an exogenous variable is one whose value is determined outside the model and is imposed on the model, and an exogenous change is a change in an exogenous variable.Mankiw, N. Gregory. Macroeconomics, third edition, 1997. Varian, Hal R., Microeconomic Analysis, third edition, 1992. Chiang, Alpha C. Fundamental Methods of Mathematical Economics, third edition, 1984. In contrast, an endogenous variable is a variable whose value is determined by the model. An endogenous change is a change in an endogenous variable in response to an exogenous change that is imposed upon the model. The term endogeneity in econometrics has a related but distinct meaning. An endogenous random variable is correlated with the error term in the econometric model, while an exogenous variable is not.

2016a

(Business Dictionary, 2016) ⇒ http://www.businessdictionary.com/definition/exogenous-variable.html
- QUOTE: Independent variable that affects a model without being affected by it, and whose qualitative characteristics and method of generation are not specified by the model builder. An exogenous variable is used for setting arbitrary external conditions, and not in achieving a more realistic model behavior. For example, the level of government expenditure is exogenous to the theory of income determination.

2016b

(Statistics How To, 2016) ⇒ http://www.statisticshowto.com/endogenous-variable/
- QUOTE: An exogenous variable is a variable that is not affected by other variables in the system. For example, take a simple causal system like farming. Variables like weather, farmer skill, pests, and availability of seed are all exogenous to crop production. Exogenous comes from the Greek Exo, meaning “outside” and gignomai, meaning “to produce.” In contrast, an endogenous variable is one that is influenced by other factors in the system. In this example, flower growth is affected by sunlight and is therefore endogenous.

(...) The term “Exogenous variable” is almost exclusively used in econometrics. However, it is sometimes used in linear regression to describe the independent variable x in the model. In other words, an exogenous variable is one that isn’t affected by any other variables in the model (although it could be affected by factors outside of the linear regression model being studied).

2016c

(Investopedia, 2016) ⇒ http://www.investopedia.com/terms/e/endogenous-variable.asp
- QUOTE: (..) In contrast to endogenous variables, exogenous variables are considered independent. This means one variable within the formula does not dictate, or directly correlate, to a change in the other. Exogenous variables have no direct or formulaic relationship, such as personal income and color preference, rainfall and gas prices, or education obtained and favorite flower.

2016d

(Weisstein, Eric W., 2016) ⇒ "Exogenous Variable." From MathWorld -- A Wolfram Web Resource. http://mathworld.wolfram.com/ExogenousVariable.html
- An exogenous variable is an economic variable which is independent of the relationships determining the equilibrium levels, but nonetheless affects the equilibrium.

2016e

(UnderstandingSociety gateway, 2016) ⇒ http://www-personal.umd.umich.edu/~delittle/Encyclopedia%20entries/Endogenous%20variable.htm
- QUOTE: Exogenous variable (see also endogenous variable): A factor in a causal model or causal system whose value is independent from the states of other variables in the system; a factor whose value is determined by factors or variables outside the causal system under study. For example, rainfall is exogenous to the causal system constituting the process of farming and crop output. There are causal factors that determine the level of rainfall — so rainfall is endogenous to a weather model — but these factors are not themselves part of the causal model we use to explain the level of crop output. As with endogenous variables, the status of the variable is relative to the specification of a particular model and causal relations among the independent variables. An exogenous variable is by definition one whose value is wholly causally independent from other variables in the system. So the category of exogenous variable is contrasted to those of purely endogenous and partially endogenous variables. A variable can be made endogenous by incorporating additional factors and causal relations into the model. There are causal and statistical interpretations of exogeneity. The causal interpretation is primary, and defines exogeneity in terms of the factors causal independence from the other variables included in the model. The statistical or econometric concept emphasizes non-correlation between the exogenous variable and the other independent variables included in the model. If xj is exogenous to a matrix of independent variables X (excluding xj), then if we perform a regression of xj against X (excluding xj), we should expect coefficients of 0 for each variable in X (excluding xj). Normal regression models assume that all the independent variables are exogenous.