Using a Demand System to Estimate Extended Input–Output Multipliers

Abstract

The interface between household income and expenditure has always been considered to be a key component in the construction of input–output models. However, it can be argued that households are too often treated as if they were just another in dustry in the input–output table. In this paper, we seek to address this problem by developing a new modelling framework in which a micro demand system is used to estim ate the relationship between income and expenditure. This demand system is conjoined with an input–output table for the UK economy, and the system as a whole is solved as a computable general equilibrium model. Comparisons are made between the Jacobian multipliers generated by this model and those derived from a more traditional input–output model in which the income-expenditure linkage is estimated using static coefficients.