Exogenous and endogenous variables

For other uses of exogeny, see Exogeny.

For endogenous variables in biology, see Endogeny (biology).

In an economic model, an exogenous change is one that comes from outside the model and is unexplained by the model. For example, in the simple supply and demand model, a change in consumer tastes is unexplained by the model and imposes an exogenous change in demand that leads to a change in the equilibrium price. Here the exogenous variable is a parameter conveying consumer tastes. Similarly, a change in the consumer's income is given outside the model and affects demand exogenously. Put another way, an exogenous change involves an alteration of a variable that is autonomous, i.e., unaffected by the workings of the model.

In contrast, an endogenous variable is one whose value is determined within the model. For example, in the liquidity preference model, the supply of and demand for money determine the interest rate.