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A methodology to study price-quantity interactions in input-output modeling: an application to NextGenerationEU funds

Author

Listed:
  • Manuel Alejandro Cardenete
  • M. Carmen Lima
  • Ferran Sancho

Abstract

The input-output (I-O) model is a widely employed tool for examining the interconnected structure of an economy and evaluating policy impacts. The current model consists of two separate and independent modules that describe the underlying factors governing quantities and prices. However, these modules lack any form of interaction, existing in isolated spheres where prices do not influence quantities, and quantities do not affect prices. Consequently, the I-O model has been questioned for its limited descriptive capability, particularly when a more comprehensive assessment is necessary. This study aims to enhance the explanatory capabilities of the I-O model by proposing a novel improvement. We introduce an extended version of the traditional I-O price and quantity models, which integrates them into a unified "price-quantity" model, establishing interdependencies between the two modules. This integrated model could be useful in advancing the explanatory capacity of I-O analysis, without having to resort to computational general equilibrium (CGE) models. As we know, CGE models are considerably more complex and resource-intensive in terms of data requirements compared to I-O models. To evaluate the impact of NextGenerationEU funds on the Spanish economy, we apply this integrated I-O model, utilizing data from a Social Accounting Matrix (SAM) for 2016, the latest year with available official I-O data.

Suggested Citation

  • Manuel Alejandro Cardenete & M. Carmen Lima & Ferran Sancho, 2023. "A methodology to study price-quantity interactions in input-output modeling: an application to NextGenerationEU funds," UFAE and IAE Working Papers 973.23, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    • Handle: RePEc:aub:autbar:973.23
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    References listed on IDEAS

    as
    1. Guerra, Ana-Isabel & Manresa, Antonio & Sancho, Ferran, 2018. "The true index of cost of living under general equilibrium: The numéraire matters," Economics Letters, Elsevier, vol. 173(C), pages 69-72.
    2. Roland-Holst, David W & Sancho, Ferran, 1995. "Modeling Prices in a SAM Structure," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 361-371, May.
    3. Pyatt, F Graham & Round, Jeffery I, 1979. "Accounting and Fixed Price Multipliers in a Social Accounting Matrix Framework," Economic Journal, Royal Economic Society, vol. 89(356), pages 850-873, December.
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    More about this item

    Keywords

    Price-quantity feedback; Social Accounting data; Impact evaluation;
    All these keywords.

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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