I have a model with the following variables:
consumption/Income ratio = b0+b1GDP+b2Money Supply+b3 inflation+b4 unemployment rate+b5 total supply+b6 total demand
I think it is a simple multiple variable model, but my professor suggested me that it is a reduced form, and she asked me how to identify this model. I cannot understand what does she mean 'reduced form'in the model, I have no idea about the model identification either, can anyone give me some help?
She means that your estimated $b$s from the statistical model are functions of the parameters in some multiple equation theoretical macro model of the economy that relates the consumption, income, and some of the other variables. Identification means that you can solve for these deep theory parameters from your estimates of $b_0,...,b_6$.
The reduced form of a model is the one in which the endogenous variable(s), like consumption-income ratio, are expressed as function(s) of the exogenous variables.
Of course, you may not have any such a model in mind and just wrote down a sensible-looking equation that does not have any economic interpretation whatsoever. It is also possible that you may not be able to get a unique solution without auxiliary assumptions. Without knowing more about the details, it is impossible to say anything about identification.
You may find this question and the example linked therein relevant.
