The paper proposes a time series generalisation of the structural equation model with latent variables (SEM). An instrumental variable estimator is considered and its asymptotic properties are analysed. Special emphases are placed on the potential use of the lagged observed variables as instruments and consistency of such estimation is established under some general assumptions about the stochastic properties of the modelled variables. In addition, an identification procedure suitable both for static and dynamic structural equation models is described. The methods are illustrated in an empirical application to dynamic panel estimation of a consumption function using UK household data.