Dynamic input-output model for a small economy

Abstract

This article applies the Dynamic Simulation (DS) technique to the dynamic input-output model (DS/IO) designed by Johnson (1985 and 1986). The model is a generalization of the static input-output model (Leontief, 1941), with an additional emphasis on economic imbalance. The DS/IO consists of a system of 4n differential equations and 2n constraints. Therefore, attempts to model analytically are likely to be unsuccessful without numerical simulation. The DS/IO used data from the Mexican economy for calibration and validation. It was found that the dynamic multipliers are greater than the static multipliers due to the accelerator effect. The simulation of the DS/IO is also validated by the fact that the adjustment between current values and production projections from 2013 to 2019 is plausible.