The role of saving and investment in a SAM price model

Abstract

Social accounting matrices (SAMs) are normally used to analyse the income generation process. They are also useful, however, for analysing the cost transmission and price formation mechanisms. For price contributions, Roland-Holst and Sancho (1995) used the SAM structure to analyse the price and cost linkages through a representation of the interdependence between activities, households and factors. This paper is a further analysis of the cost transmission mechanisms, in which we add the capital account to the endogenous components of the Roland-Holst and Sancho approach. By doing this we reflect the responses of prices to the exogenous shocks in saving and investment. We also present an additive decomposition of the global price effects into categories of interdependence that isolates the impact on price levels of shocks in the capital account. We use a 2001 social accounting matrix to make an empirical application of the Catalan economy.