Supply and Demand Interaction in Integrated Econometric and Input-Output Models

Abstract

Integrated input-output and econometric models are often claimed to be superior to either input-output or econometric models alone by virtue of capturing supply and demand interactions. This claim is examined by considering the structure of existing integrated models. It was found that existing integrated models do not offer supply and demand interaction. This is because neither of the major components of the integrated models offer an adequately specified supply side. Integrating two demand-driven models does not produce a model with supply and demand interaction. The prospects that integrated models will improve on this score, particularly at the subnational level, are not high. Rather, it is suggested that the integrated modeling strategies be skipped over and a computable general equilibrium modeling strategy be adopted.