

In the model below, the two exogenous variables (Ex1 and Ex2)are modeled as being correlated and as having both direct and indirect effects (through En1) on En2 (the two dependent or 'endogenous' variables. In most real models, the endogenous are also affected by factors outside the model (including measurement error). The effects of such extraneous variables are depicted by the 'e' or 'error' terms in the model.
Using the same variables, alternative models are conceivable. For example, it may be hypothesized that Ex1 has only an indirect effect on En2, thus the arrow from Ex1 to En2 would be deleted, and the likelihood or 'fit' of these two models can be compared statistically.
See also
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Last updated on Friday September 12, 2008 at 08:54:34 PDT (GMT -0700)
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