Editing Simultaneous equations model (section)

=== Assumptions ===
Firstly, the rank of the matrix ''X'' of exogenous regressors must be equal to ''k'', both in finite samples and in the limit as {{nowrap|''T'' → ∞}} (this later requirement means that in the limit the expression <math style="vertical-align:-.4em">\scriptstyle \frac1TX'\!X</math> should converge to a nondegenerate ''k×k'' matrix). Matrix Γ is also assumed to be non-degenerate.

Secondly, error terms are assumed to be serially [[independent and identically distributed]]. That is, if the ''t''<sup>th</sup> row of matrix ''U'' is denoted by ''u''<sub>(''t'')</sub>, then the sequence of vectors {''u''<sub>(''t'')</sub>} should be iid, with zero mean and some covariance matrix Σ (which is unknown). In particular, this implies that {{nowrap|E[''U''] {{=}} 0}}, and {{nowrap|E[''U′U''] {{=}} ''T'' Σ}}.

Lastly, assumptions are required for identification.