AN APPLICATION OF THE GENERALIZED INVERSE IN INPUT-OUTPUT AND MACROECONOMIC ANALYSIS

K. P. Vishwakarma

No 272177, Econometric Institute Archives from Erasmus University Rotterdam

Abstract: The generalized inverse concept is applied to a dynamic model for the Netherlands that incorporates both input-output and macroeconomic relationships. The model is over-determined in that there are 34 equations for its 33 endogenous economic variables. The implications for policymaking of either retaining or dropping a constraint on balance of payments are studied through the generalized inverse. When that constraint is excluded, the model reduces to the more familiar fully-determined situation, having 33 equations in as many variables. Numerical results relating to shifts in indirect taxes are given. It is seen that the response of the over-determined model, the 34 equation case, is radically different from that of the fullydetermined case. In fact, a reversal of charges in, for example, unemployment, wage rate, and in prices of exports and private consumption is observed. The conclusion is then that familiar ideas about policymaking which are based on fully-determined models, may have to be revised thoroughly when an over-determined model is more appropriate.

Keywords: Agricultural and Food Policy; Research Methods/Statistical Methods (search for similar items in EconPapers)
Pages: 28
Date: 1979
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Persistent link: https://EconPapers.repec.org/RePEc:ags:eureia:272177

DOI: 10.22004/ag.econ.272177

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