Abstract
We develop a novel linear equilibrium model with an Armington flavor. We provide (1) proof of the solvability of the model and of the existence and non-negativity of the equilibrium solution and of the newly derived multiplier matrix; we also show (2) that the standard Leontief multiplier matrix arises as a special case of this new model and (3) that this model allows the computation of multiplier effects with no external output bias, which is particularly relevant for applied economic analysis.
Highlights
Linear general equilibrium models provide a simple and transparent platform for economic analysis and policy evaluation
Domestic output summarizes the internal economic response to any changes originating in final demand, once the economy has absorbed all the general equilibrium interactions
7 Conclusions The model we develop in this technical note includes the standard linear model as a special case
Summary
Linear general equilibrium models provide a simple and transparent platform for economic analysis and policy evaluation. The best-known linear model is the classic Leontief model (Leontief 1966; Miller and Blair 2009) This model has the nice property that yields a reduced form that allows for the calculation of output multipliers in response to demand-driven changes, such as those initiated by discretionary government expenditure policies. Domestic output summarizes the internal economic response to any changes originating in final demand, once the economy has absorbed all the general equilibrium interactions. The Armington principle is based on the fact that the total supply of an economy is an aggregate of domestic and imported foreign outputs. We use the Armington principle to reformulate the linear interindustry model in a way that allows for a more sensible measurement of the multiplier effects; this new model version, includes the standard linear model as a limit case.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
