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ntermediate Production in a Stock-Flow Consistent Model with Environmental Extensions
1. Intermediate Production in a Stock- Flow Consistent Model with Environmental ExtensionsCombining Stock-Flow-Consistent Models and (Ecologically Extended) Dynamic Input-Output Models
Matthew Berg, Brian Hartley, and Oliver Richters
2. Outline
•Motivation
•Not actually a single model; an ongoing series of models
•2 sector simplified model
•15 sector expansion (proof of concept)
–Environmental Extensions
•Energy Use
•Greenhouse Gas Emissions
•2 sector model with production constraints
–Capacity utilization targeting in addition to inventory buffer stock
Matthew Berg, Brian Hartley, and Oliver Richters
Intermediate Production in a Stock-Flow Consistent Model with
Environmental Extensions
3. Motivation
1.(Dynamic) Input-Output Models
2.With an SFC model determining composition and size of final demand
3.Environmentally Extended Input-Output Models
Matthew Berg, Brian Hartley, and Oliver Richters
Intermediate Production in a Stock-Flow Consistent Model with
Environmental Extensions
4. 2 Sector Simplified Model
•Similar to models in Monetary Economics (Godley & Lavoie)
•But adds intermediate production
Matthew Berg, Brian Hartley, and Oliver Richters
Intermediate Production in a Stock-Flow Consistent Model with
Environmental Extensions
5. Basic Structure of the Model
•4 aggregated sectors:
–Households
–Industry 1
–Industry 2
–Government/Central Bank/Private Banks
•Industry 1 uses Good 2 as an intermediate input to Produce Good 1
•Industry 2 uses Good 1 as an intermediate input to Produce Good 2
Matthew Berg, Brian Hartley, and Oliver Richters
Intermediate Production in a Stock-Flow Consistent Model with
Environmental Extensions
6. Simplest Model of Intermediate Production
•Simple Leontief A Matrix:
A = 0.25.250
Matthew Berg, Brian Hartley, and Oliver Richters
Intermediate Production in a Stock-Flow Consistent Model with
Environmental Extensions
7. Gross output
풙푖푡=푨풊풋풙풊푡+풇풊푡+풛풊(푡)
풙푖푡=[푰−푨풊풋]−ퟏ[풇풊푡+풛풊푡]
Where:
풙푖푡aregross output
푨풊풋풙푖푡are intermediate production
풛푖푡are investment at time t
풇풊푡are final deliveries (ex investment) at time t
Matthew Berg, Brian Hartley, and Oliver Richters
Intermediate Production in a Stock-Flow Consistent Model with
Environmental Extensions
8. Effect of an increase in energy sector markup
Matthew Berg, Brian Hartley, and Oliver Richters
Intermediate Production in a Stock-Flow Consistent Model with
Environmental Extensions
9. 15 Sector Environmentally Extended Model
•Same basic structure as 2 sector model
•But expanded to 15 sectors
–Proof of concept
Matthew Berg, Brian Hartley, and Oliver Richters
Intermediate Production in a Stock-Flow Consistent Model with
Environmental Extensions
10. 15 Sector Environmentally Extended Model
•Input-Output Accounts Data
–US Bureau of Economic Analysis, 1997-2012 Data
•Environmental Accounts Data
–World Input-Output Database, 2012 Data
•Linked to SFC Model
Matthew Berg, Brian Hartley, and Oliver Richters
Intermediate Production in a Stock-Flow Consistent Model with
Environmental Extensions
11. Real Output (Physical Flow)
Matthew Berg, Brian Hartley, and Oliver Richters
Intermediate Production in a Stock-Flow Consistent Model with
Environmental Extensions
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
Q1 1998
Q2 1998
Q3 1998
Q4 1998
Q1 1999
Q2 1999
Q3 1999
Q4 1999
Q1 2000
Q2 2000
Q3 2000
Q4 2000
Q1 2001
Q2 2001
Q3 2001
Q4 2001
Q1 2002
Q2 2002
Q3 2002
Q4 2002
Q1 2003
Q2 2003
Q3 2003
Q4 2003
Q1 2004
Q2 2004
Q3 2004
Q4 2004
Q1 2005
Q2 2005
Q3 2005
Q4 2005
Q1 2006
Q2 2006
Q3 2006
Q4 2006
Q1 2007
Q2 2007
Q3 2007
Q4 2007
Q1 2008
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Real Output (Physical Units)
Agriculture
Mining
Utilities
Construction
Manufacturing
Wholesale Trade
Retail Trade
Transportation
Information
FIRE
Prof. and Bus. Services
Education, Health, Social
Arts, Ent, Rec
Other Services
15. 2 sector model with supply constraints
•Introduces capacity constraints / capacity utilization
•Can produce cost-push inflation
–Based upon interdependencies, indexation
Matthew Berg, Brian Hartley, and Oliver Richters
Intermediate Production in a Stock-Flow Consistent Model with
Environmental Extensions
16. Cost-Push Inflation; Wage-Price Spiral
Matthew Berg, Brian Hartley, and Oliver Richters
Intermediate Production in a Stock-Flow Consistent Model with
Environmental Extensions
0
0.5
1
1.5
2
2.5
3
T1
T2
T3
T4
T5
T6
T7
T8
T9
T10
T11
T12
T13
T14
T15
T16
T17
T18
T19
T20
T21
ϕ1
W1
COLA
Shortage1
UC1
P1
17. Cost-Push Inflation; Wage-Price Spiral
•Sequence:
1.Shortage
1.Quantity adjustment; deplete inventories; build more capacity
2.Price adjusment; increase markup
2.Unit costs of intermediate inputs increase
3.Prices increase
4.Wages increase (if inflation-indexed)
5.Shortage stops
6.Inflation does not stop (not caused by expectations) but may decelerate
Matthew Berg, Brian Hartley, and Oliver Richters
Intermediate Production in a Stock-Flow Consistent Model with
Environmental Extensions
18. Increase in propensity to consume bottlenecks cost-push inflation
Matthew Berg, Brian Hartley, and Oliver Richters
Intermediate Production in a Stock-Flow Consistent Model with
Environmental Extensions
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
ϕ1
ϕ2
W1
W2
COLA
P1
P2
UC1
UC2
19. Problems
•How to treat expectations
–Anticipating demand interdependencies (inventories, capacity)
•Working capital (“intermediate inventories” vs. “final inventories”)
–Varying production times for capacity & output
•How to treat the short period/time
–Feedbacks from realized results to decisions within the same time period (ex ante/ex post)
Matthew Berg, Brian Hartley, and Oliver Richters
Intermediate Production in a Stock-Flow Consistent Model with
Environmental Extensions
20. Applications/Extensions
•Capacity Targeting
–“Supply” and “Demand” are co-determined
–Harrod/DomarProblem
•Ecological/Intermediate Inputs
•Cost-Push Inflation / bottlenecks in a multisectoralmodel
–Conflict theory of inflation; income distribution
Matthew Berg, Brian Hartley, and Oliver Richters
Intermediate Production in a Stock-Flow Consistent Model with
Environmental Extensions