Impact Analysis
Contents
Definition
Impact Analysis is a technique that is used in diverse Risk Management contexts.
In the context of Operational Risk, it is the process of analyzing all operational activities and the effect that an operational impact might have upon them.
In the context of an Input-Output Model, it is the use of IO tables and additional assumptions to assess the potential economic impact of future events or policy changes (What-If Scenarios)[1]
Usage
IO tables and models are widely used in the context of classical economic impact analysis (EIA). The assumed changes in final-demand elements (e.g., federal government spending, household consumption, exports etc) are translated, via the appropriate Leontief Inverse Matrix, to corresponding output changes in the industrial sectors of the economy. When the exogenous changes occur because of the actions of only one “impacting agent” (or a small number of such agents) and when the changes are expected to occur in the short run (e.g., next year), this is usually called impact analysis. Examples are a change in federal government defense spending or in consumer demand for recreation vehicles.
The use of the input–output framework for impact analysis, due to changing final demands, using multipliers, constitutes one of the most frequent uses of the model.
A general list of the types of issues explored with impact analysis:
- changes in prices or tax rates on the value of supply or use
- changes in volumes on the value of supply or use
- changes in prices of supply on prices of use
- changes in the volume of use on the volume of supply
- changes in the volume of supply on the volume of use
- impact analysis of new technologies
- sensitivity analysis of the effects of changes in tax rates and regulations
- environmental impact analysis of any of the above
Formula
The general form of the model is to start with the base model (x = Lf) and introduce an new vector f that incorporates the assumed or projected behavior of one or more final-demand elements. The final demand value or values are usually completely specified – for example, what is the impact, by sector, of a new order for $2.5 million worth of sector j output by the federal government? Then f contains 2.5 (million) in the jth row and zeros elsewhere.
See Also
References
- ↑ R.E. Miller and P.D. Blair, Input-Output Analysis: Foundations and Extensions, Second Edition, Cambridge University Press, 2009
