A methodology to study price-quantity interactions in input–output modeling: an application to NextGenerationEU funds

Abstract

The standard input–output (IO) model consists of two distinct and self-contained modules that describe the underlying factors governing quantities and prices. However, these modules operate independently, existing in separated spheres where prices do not influence quantities and quantities do not affect prices. This limitation restricts the standard model's ability to evaluate market dynamics that involve simultaneous changes in both quantities and prices. To overcome this limitation, we introduce an extended version of the traditional IO price and quantity models, combining them into a unified ‘price-quantity’ model that establishes connections between the two IO modules. We apply this integrated IO model to evaluate the impact of NextGenerationEU funds on the Spanish economy utilizing input–output and national accounts data for 2016.