Extending the finite iterative method for computing the covariance matrix implied by a recursive path model

Abstract

Given q + p variables (q endogenous variables and p exogenous variables) and the covariance matrix among exogenous variables, how to compute the covariance matrix implied by a given recursive path model connecting these q + p variables? The finite iterative method (FIM) was recently introduced by El Hadri and Hanafi (Electron J Appl Stat Anal 8:84-99, 2015) to perform this task but only when all the variables are standardized (and so the covariance matrix is actually a correlation matrix). In this paper, the extension of FIM to the general case of a covariance matrix case is introduced. Moreover, the computational efficiency of FIM and the well-known Jöreskog’s method is discussed and illustrated.