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An Application Of The Generalized Inverse In Input-Output And Macroeconomic Analysis

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  • Vishwakarma, K. P.

Abstract

The generalized inverse concept is applied to a dynamic model for the Netherlands that incorporates both input-output and macroeconomic relationships. The model is over-determined in that there are 34 equations for its 33 endogenous economic variables. The implications for policymaking of either retaining or dropping a constraint on balance of payments are studied through the generalized inverse. When that constraint is excluded, the model reduces to the more familiar fully-determined situation, having 33 equations in as many variables. Numerical results relating to shifts in indirect taxes are given. It is seen that the response of the over-determined model, the 34 equation case, is radically different from that of the fullydetermined case. In fact, a reversal of charges in, for example, unemployment, wage rate, and in prices of exports and private consumption is observed. The conclusion is then that familiar ideas about policymaking which are based on fully-determined models, may have to be revised thoroughly when an over-determined model is more appropriate.

Suggested Citation

  • Vishwakarma, K. P., 1979. "An Application Of The Generalized Inverse In Input-Output And Macroeconomic Analysis," Econometric Institute Archives 272177, Erasmus University Rotterdam.
    • Handle: RePEc:ags:eureia:272177
    DOI: 10.22004/ag.econ.272177
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    References listed on IDEAS

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    1. Preston, Ross S, 1975. "The Wharton Long Term Model: Input-Output within the Context of a Macro Forecasting Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(1), pages 3-19, February.
    2. Rogelio Montemayor Seguy & Jesus A. Ramirez, 1975. "The Use of Input-Output Analysis in an Econometric Model of the Mexican Economy," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 4, number 4, pages 531-552, National Bureau of Economic Research, Inc.
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