On the Interrelation of the Leontief Inverse with Final Demand and Total Output: Based on the Correct Consecutive Connections
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In the literature especially concerning input-output multipliers, the multiplication of the Leontief inverse L = (I-A)-1 by the total output x often occurs. This paper clarifies the interrelation of L with final demand f and total output x. Specifically, we show that there is “consecutive connection” between L and x, but there is no consecutive connection between L and x; that is, L should not be multiplied by x. We give reasons why Lx does not make sense and discuss what makes practitioners and researchers to think that the Leontief inverse can be multiplied by the total output. We illustrate that overlooking such misconceptions could cause erroneous results, for instance, in the formulation of net multipliers which can accept outputs as entries.
Abstract
In the literature especially concerning input-output multipliers, the multiplication of the Leontief inverse L = (I-A)-1 by the total output x often occurs. This paper clarifies the interrelation of L with final demand f and total output x. Specifically, we show that there is “consecutive connection” between L and x, but there is no consecutive connection between L and x; that is, L should not be multiplied by x. We give reasons why Lx does not make sense and discuss what makes practitioners and researchers to think that the Leontief inverse can be multiplied by the total output. We illustrate that overlooking such misconceptions could cause erroneous results, for instance, in the formulation of net multipliers which can accept outputs as entries.
참고문헌 (17)
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