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Article
Supply and Demand Biases in Linear Interindustry Models
Economic Modelling (2013)
  • Antonio Manresa, Universidad de Barcelona
  • Ferran Sancho, Universitat Autonoma de Barcelona
Abstract
We explore the sectoral and aggregate implications of some endogeneization rules (i.e. on value-added and final demand) which have been common in the extended demand-driven Leontief model and have been recently proposed in the supply-driven Ghosh model. Extended linear models are refinements that aim at endowing the linear models with additional general equilibrium feedbacks. We detect that these rules may give rise in these models to some allegedly pathological behavior in the sense that sectoral or aggregate output, very often, may not follow the logical and economically expected direct relationship with some underlying endogenous variables—namely, output and value- added in the supply-driven model and output and consumption in the demand-driven model. Because of their shared mathematical structure, whatever is or seems to be pathological in the Ghosh model also has a symmetric counterpart in the Leontief model. These would not be good news for the inner consistency of these linear models and raise doubts regarding the validity of their empirical applications. To avoid such possible inconsistencies, we propose new and simple endogeneization rules that have a sound economic interpretation.
Publication Date
July, 2013
Citation Information
Antonio Manresa and Ferran Sancho. "Supply and Demand Biases in Linear Interindustry Models" Economic Modelling Vol. 33 (2013)
Available at: http://works.bepress.com/ferran_sancho/56/