The role of supply constraints in multiplier analysis

Manuel Alejandro Cardenete, Ferran Sancho

Research output: Contribution to journalArticleResearchpeer-review

10 Citations (Scopus)

Abstract

Multiplier analysis based upon the information contained in Leontief's inverse is undoubtedly part of the core of the input-output methodology and numerous applications and extensions have been developed that exploit its informational content, both at the national and regional levels. Nonetheless there are some implicit theoretical assumptions whose policy implications need to be assessed. This is the case for the 'excess capacity' assumption, which implies that resources are available as needed to adjust production to new equilibrium states. In an actual economy, however, new resources are often scarce and always costly. When supply constraints intervene, the assessment of the effects of government demand policies may be substantially different from that of the standard Leontief multiplier matrix. Using a closed general equilibrium model that incorporates supply constraints, we perform some simple numerical exercises and proceed to derive two 'constrained' multiplier matrices, based upon the implicit Jacobian matrix, that can be compared with the standard 'unconstrained' Leontief matrix. © 2012 Copyright The International Input-Output Association.
Original languageEnglish
Pages (from-to)21-34
JournalEconomic Systems Research
Volume24
DOIs
Publication statusPublished - 1 Mar 2012

Keywords

  • Economic linkages
  • General equilibrium
  • Key sectors
  • Multipliers
  • Policy evaluation

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