Chapter 2 - Input-Output Data and Input-Output Models

Abstract

This chapter discusses the input–output data and input–output models. The prototype for modern applied general equilibrium models is Leontief's input–output model. It emphasizes interdependencies between different industries and between industries and households that arise from their roles as each other's customers: The purchase of material inputs by one industry from others or of labor and capital inputs from households, and the purchase of consumer goods by households from industries. Models that attempt to capture all these interdependencies require two types of data: input–output tables and behavioral parameters. Input–output tables record, for one period in time, the commodity flows, which take place among the components of the economy. Behavioral parameters summarize how agents respond to changes in activity variables and prices, for example, how producers adjust their demands for inputs in response to changes in their output levels and input prices or how households adjust the level and composition of their consumption in response to changes in their incomes and consumer prices. Input–output models, because they include only direct interdependencies among the components of the economy, require as data only input–output tables.