Rose, A., 1995. Input-output economics and computable general equilibrium models. Structural Change and Economic Dynamics, 6(3), 295-304.
“My experience is that economists trained before the mid-1970s readily appreciate and acknowledge Leontief’s work, while many of those trained scine, including those standing on his broad shoulders, have distanced themselves from input-output analysis. I refer primarily to those working in the area of computable general equilibrium (CGE) models” (296).
I-O models are crucial for the development of CGE models. Also, I-O models offer a different kind of analysis of market interaction and dependencies and are not based on assumptions of equilibrium or certain kind of actor behavior.
Footnote 3: “Most CGE models are based on a social accounting matrix (SAM), a framework developed by Stone (1966). A SAM is a matrix of interactions in the spirit of the production relationships of I-O, with a much greater emphasis on institution accounts” (296).
“Several features of I-O analysis clearly distinguish it form its precursors and continue to be of lasting value to its direct descendants and to other models” (297).
It is rooted in technological development. It bridges the divide between economists and business people/factory people. The simplicity of the table is a strength. Help facilitate discussions between private and public sector interactions. I-O accounting is used globally and is not political. I-O analysis accounts for all input factors in production, something that many neoclassical accounts do not.
I-O Myths:
I-O has no role for prices.
I-O is static.
*plus more, but I was only interested in the above
“One of the major areas of the relative advantage of CGE is international and interregional competition…Other areas of advantage of CGE models include tax policy, where behavioral considerations are crucial” (301).
Showing posts with label I-O Model. Show all posts
Showing posts with label I-O Model. Show all posts
Monday, August 11, 2008
Tuesday, July 8, 2008
Dellink: Modelling the Costs of Environmental Policy
Dellink, Rob B. 2005. Modelling the Costs of Environmental Policy: A Dynamic Applied General Equilibrium Assessment. Edward Elgar Publishing.
Different kinds of economic models:
Partial equilibrium models: “…describe those markets in an economy that are relevant for the analysis at hand” (13).
General equilibrium models: “…are similar to partial equilibrium models, with the main difference that general equilibrium models describe the entire economy” (13). See Ginsburg and Keyzer 1997.
Input-output models: “…can be regarded as simplified general equilibrium models, since they assume that substitution possibilities are absent” (13).
Neo-classical growth models: “…share their micro-economic foundation with general equilibrium models, but look at the development of the economy over time. Dynamic general equilibrium models are effectively neo-classical growth models” (14).
Endogenous growth models: “…emerged from neo-classical growth models, as many authors were dissatisfied with the fact that exogenously –given technological change is the driving force of economic growth in the neo-classical growth models. Therefore, models were developed that describe technological change endogenously” (14).
Neo-Keynesian models: “…are not based entirely on micro-economic theory, but rather on extrapolation of historic trends” (14).
There are three conditions that must be met for AGE models: zero profit, household income condition (that expenses can never be above income) and the market clearing condition.
UPDATE:
Different specifications of models:
Theoretical v. applied
Static v. dynamic
For dynamic: myopic for forward looking
Determistic v. stochastic
Calibrated v. estimated
Geographical scale
How integrated within sub-models
Tech progress: endogenous or exogenous (15-6)
Three basic conditions for AGEs:
Zero profit condition: “…under constant returns to scale the value of output has to equal the value of all inputs…firms that have a constant returns to scale production function and that operate under full competition will never be able to reap any excess profits. Note that this does not imply that there is no return to capital: capital is one of the inputs to production and receives a payment like all other inputs” (17).
Income condition: “Households cannot increase their expenditures above their income…Total income may stem from payments for the supply of labour and capital to the firms and from tax revenues” (17).
Market clearing condition: “For each good, the market clearing conditionhas to be satisfied, that is, total demand equals total supply. For the primary production factors, labour and capital, this means that total demand for these goods must be equal to the total amount available” (17).
“Applied general equilibrium models are generalized input-output models, where substitution is allowed and prices are determined within the model. They can be seen as a system of non-linear equations, which can be solved simultaneously. The essence of AGEs is that prices of all goods are determined within the model such that all the conditions stated above are satisfied simultaneously. The economy can be described in the AGE model as a set of balances: for every demand there is a supply” (18).
Different kinds of economic models:
Partial equilibrium models: “…describe those markets in an economy that are relevant for the analysis at hand” (13).
General equilibrium models: “…are similar to partial equilibrium models, with the main difference that general equilibrium models describe the entire economy” (13). See Ginsburg and Keyzer 1997.
Input-output models: “…can be regarded as simplified general equilibrium models, since they assume that substitution possibilities are absent” (13).
Neo-classical growth models: “…share their micro-economic foundation with general equilibrium models, but look at the development of the economy over time. Dynamic general equilibrium models are effectively neo-classical growth models” (14).
Endogenous growth models: “…emerged from neo-classical growth models, as many authors were dissatisfied with the fact that exogenously –given technological change is the driving force of economic growth in the neo-classical growth models. Therefore, models were developed that describe technological change endogenously” (14).
Neo-Keynesian models: “…are not based entirely on micro-economic theory, but rather on extrapolation of historic trends” (14).
There are three conditions that must be met for AGE models: zero profit, household income condition (that expenses can never be above income) and the market clearing condition.
UPDATE:
Different specifications of models:
Theoretical v. applied
Static v. dynamic
For dynamic: myopic for forward looking
Determistic v. stochastic
Calibrated v. estimated
Geographical scale
How integrated within sub-models
Tech progress: endogenous or exogenous (15-6)
Three basic conditions for AGEs:
Zero profit condition: “…under constant returns to scale the value of output has to equal the value of all inputs…firms that have a constant returns to scale production function and that operate under full competition will never be able to reap any excess profits. Note that this does not imply that there is no return to capital: capital is one of the inputs to production and receives a payment like all other inputs” (17).
Income condition: “Households cannot increase their expenditures above their income…Total income may stem from payments for the supply of labour and capital to the firms and from tax revenues” (17).
Market clearing condition: “For each good, the market clearing conditionhas to be satisfied, that is, total demand equals total supply. For the primary production factors, labour and capital, this means that total demand for these goods must be equal to the total amount available” (17).
“Applied general equilibrium models are generalized input-output models, where substitution is allowed and prices are determined within the model. They can be seen as a system of non-linear equations, which can be solved simultaneously. The essence of AGEs is that prices of all goods are determined within the model such that all the conditions stated above are satisfied simultaneously. The economy can be described in the AGE model as a set of balances: for every demand there is a supply” (18).
Leontief: Input-output economics
Leontief, Wassily. 1986. Input-output Economics. Oxford University Press.
This text was originally published in 1966. It begins by exploring better ways to forecast economic variables. Input-output tables are seen as being crucial for this endeavor. The first input-output table for the US was produced for the year 1947.
“Without entering into technical details, it suffices to say that such input-output tables show the flows of goods and services among all the different sectors of a national economy, but that a broad tabulation of economic activity is not enough for business purposes. To supply a reliable statistical base for coordinated market analysis on the part of business firms, an input-output table must be much more detailed. It should describe the actual state of the particular national economy in the base year—that is, the year from which the forward-demand projections are to be made—in terms of, say, 150, 200, or even as many as 300 or 400 separate industries or sectors” (8).
“This article is concerned with a new effort to combine economic facts and theory known as ‘interindustroy’ or ‘input-output’ analysis. Essentially it is a method of analysis that takes advantage of the relatively stable pattern of the flow of goods and services among the elements of our economy to bring a much more detailed statistical picture of the system into the range of manipulation by economic theory” (14).
The table can be used to calculate the effects of cost changes, i.e., the cost of wage increases on certain sectors, the cost of tax changes on sectors, etc. Also, the model can show the relative robustness of different sectors of the economy. “The input-output table is not merely a device for displaying or storing information; it is above all an analytical tool” (43).
“The great virtue of input-output analysis is that it surfaces the indirect internal transactions of an economic system and brings them into the reckonings of economic theory” (44).
This text was originally published in 1966. It begins by exploring better ways to forecast economic variables. Input-output tables are seen as being crucial for this endeavor. The first input-output table for the US was produced for the year 1947.
“Without entering into technical details, it suffices to say that such input-output tables show the flows of goods and services among all the different sectors of a national economy, but that a broad tabulation of economic activity is not enough for business purposes. To supply a reliable statistical base for coordinated market analysis on the part of business firms, an input-output table must be much more detailed. It should describe the actual state of the particular national economy in the base year—that is, the year from which the forward-demand projections are to be made—in terms of, say, 150, 200, or even as many as 300 or 400 separate industries or sectors” (8).
“This article is concerned with a new effort to combine economic facts and theory known as ‘interindustroy’ or ‘input-output’ analysis. Essentially it is a method of analysis that takes advantage of the relatively stable pattern of the flow of goods and services among the elements of our economy to bring a much more detailed statistical picture of the system into the range of manipulation by economic theory” (14).
The table can be used to calculate the effects of cost changes, i.e., the cost of wage increases on certain sectors, the cost of tax changes on sectors, etc. Also, the model can show the relative robustness of different sectors of the economy. “The input-output table is not merely a device for displaying or storing information; it is above all an analytical tool” (43).
“The great virtue of input-output analysis is that it surfaces the indirect internal transactions of an economic system and brings them into the reckonings of economic theory” (44).
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