Two problems with the use of the cost-push input−output price model

Krisztián Koppány

Economic Systems Research, 2025, vol. 37, issue 4, 620-649

Abstract: This paper identifies two problems related to the use of the cost-push input–output (IO) price model that have not been previously discussed in the literature. These problems and their proposed solutions are presented with numerical examples and illustrative applications. The first issue relates to the variation of export exchange rates, which cannot be modelled within the framework, yet affects the output-price index. Without addressing this problem separately, the model yields an incorrect result. The second issue concerns the available data compatible with IO tables and IO price analyses, specifically the output price deflators or implicit price indices. Being of the Paasche-type, these indices are better suited for retrospective studies than for forecasting. This paper proposes a basic decomposition framework for analysing output price inflation both before (ex-ante) and after (ex-post) it occurs. For the ex-post analysis, a simplified empirical application for Hungary illustrates the practical potential of the model.

Date: 2025
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DOI: 10.1080/09535314.2025.2539721

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