EXOGENOUS VARIABLE

(Statistics) A variable whose value is determined completely outside the model system and whose behavior is used to describe that of the Endogenous Variable. As such the terms independent or explanatory variable are frequently used. An exception to this is a Lagged Endogenous Variable, which may also be an explanatory variable but whose value is determined within the system of equations by past values of the explanatory variables. For example, in the equation below, for any time period t (where t=1, 2, ..., n), Yt = a + ß Xt + ð Yt-1 + et; where Yt represents the endogenous variable, Xt represents the exogenous variable, and Yt-1 represents the lagged endogenous variable. Also referred to as the Independent Variable or the Explanatory Variable.