The Role of Supply Constraints in Multiplier Analysis
AbstractMultiplier analysis based upon the information contained in Leontief's inverse is undoubtedly part of the core of the input-output methodology and numerous applications an extensions have been developed that exploit its informational content. Nonetheless there are some implicit theoretical assumptions whose implications have perhaps not been fully assessed. This is the case of the 'excess capacity' assumption. Because of this assumption resources are available as needed to adjust production to new equilibrium states. In real world applications, however, new resources are scarce and costly. Supply constraints kick in and hence resource allocation needs to take them into account to really assess the effect of government policies. Using a closed general equilibrium model that incorporates supply constraints, we perform some simple numerical exercises and proceed to derive a 'constrained' multiplier matrix that can be compared with the standard 'unrestricted' multiplier matrix. Results show that the effectiveness of expenditure policies hinges critically on whether or not supply constraints are considered.
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Bibliographic InfoPaper provided by Barcelona Graduate School of Economics in its series Working Papers with number 432.
Date of creation: Feb 2010
Date of revision:
Key sectors; Economic linkages; Policy evaluation; Economy-wide modeling;
Other versions of this item:
- Manuel Alejandro Cardenete & Ferran Sancho, 2012. "The Role Of Supply Constraints In Multiplier Analysis," Economic Systems Research, Taylor & Francis Journals, vol. 24(1), pages 21-34, June.
- M. Alejandro Cardenete & Ferran Sancho, 2010. "The Role of Supply Constraints in Multiplier Analysis," UFAE and IAE Working Papers 805.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
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