Forecasting with Input–Output Matrices: Are the Coefficients Stationary?

Abstract

The incorporation of an input–output matrix into a macroeconomic forecasting model is a common practice. Are the input–output coefficients stationary, however? This study uses a set of 27 annual input–output matrices for Canada for the period 1961-87 to explore this question. It is found that, for 64 major coeficients for goods-producing industries, the majority have time trends with autocorrelated deviations from trend. In many cases the trend can be explained by relative price variations or by the movement of income per person. It is also found that, contrary to an earlier study, value coeficients are no more stable than are volume coeficients. It is recommended that this time series behaviour of input–output coefficients be taken into account when forecasting.