What is the difference between structural and reduced form models

Economist ee Economist ea8c. Essentially, the number of regressors. Regressions with lots of covariates are claimed to be structural estimations while those with only a handful covariates are called reduced form. But you will also find folks saying that theory guided regressions are structural while reduced form is not.

Economist f Economist 5a Econometrics is like a Brazilian bikini. What it reveals is important; what it conceal is crucial.

Economist df7d. It can reveal much but it conceals some crucial parts Op here. How much is a "handful covariates"? So any regression with more than 5 covariates is structural? But in reality, structural form models are simply restricted reduced form models based upon different information assumptions. In short, structural models assume detailed knowledge whereas reduced models assume less detailed or incomplete knowledge of the factors. Many economists agree that the modeling approach that is preferred in a given situation is dependent on the purpose for which the model is being used.

For instance, many of the core pursuits in financial economics are more descriptive or predictive exercises, which can be effectively modeled in reduced form since the researchers do not necessarily require some deep structural understanding and often do not have that detailed understanding.

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