Linear structural equation models (SEMs) are widely used in sociology, econometrics, biology, and other sciences. A SEM (without free parameters) has two parts: a probability distribution (in the Normal case specified by a set of linear structural equations and a covariance matrix among the “error” or “disturbance” terms), and an associated path diagram corresponding to the causal relations among variables specified by the structural equations and the correlations among the error terms. It is often thought that the path diagram is nothing more than a heuristic device for illustrating the assumptions of the model. However, in this paper, we will show how path diagrams can be used to solve a number of important problems in structural equation modelling.
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