Sims
took this viewpoint a step further and argued that in presence of rational expectations
a priori knowledge of lag lengths is indispensable for identification, even when we have
distinct strictly exogenous variables shifting supply and demand schedules. (Sims, 1980,
p. 7). While it is true that the REH complicates the necessary conditions for the identi-
fication of structural models, the basic issue in the debate over identification still centres
on the validity of the classical dichotomy between exogenous and endogenous variables.
(Pesaran, 1981). In the context of closed economy macroeconometric models where all
variables are treated as endogenous other forms of identification of the structure will be
required. Initially, Sims suggested a recursive identification approach where the matrix of
contemporaneous effects were assumed to be lower (upper) triangular and the structural
shocks orthogonal. Other non-recursive identification schemes soon followed.