Energy import costs in a flexible input-output price model

Maria Llop

Resource and Energy Economics, 2020, vol. 59, issue C

Abstract: A fundamental assumption of the input-output (IO) model is a fixed relationship between interindustry flows. In the price version of the model, the assumption of fixed-coefficients prevents the optimal mix of inputs being adjusted when relative prices change. The aim of this paper is to evaluate the role of energy import prices in the IO price model without the usual non-substitution technology inherent to the input-output structure. The analysis includes alternative substitution possibilities for the elements that comprise the sectoral costs, which are empirically implemented from an IO dataset. The various substitution scenarios are defined by three different cost structures: the Leontief, Cobb-Douglas and Constant Elasticity of Substitution (CES) functions. The empirical application to the Catalan economy illustrates the relevance of the flexibility option used for explaining the quantitative influence of energy import prices on domestic prices. Adapting the traditional input-output model to include factor substitution makes it possible to overcome the rigidity in transmitting price impacts, and illustrates a range of possible effects.

Keywords: Energy import prices; Price impacts; Input-output model; Primary inputs; Substitution possibilities (search for similar items in EconPapers)
JEL-codes: C67 D57 Q41 Q43 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:59:y:2020:i:c:s092876551930123x

DOI: 10.1016/j.reseneeco.2019.101130

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