Multiplier Analysis
Contents
Definition
Multiplier Analysis is a form of Input-Output Analysis on the basis of an Input-Output Model.[1]
Usage
Several of the most frequently used types of multipliers are those that estimate the effects of exogenous changes on
- outputs of the sectors in the economy
- income earned by households in each sector because of the new outputs
- employment (jobs, in physical terms) that is expected to be generated in each sector because of the new outputs and the value added that is created by each sector in the economy because of the new outputs.
The notion of multipliers rests upon the difference between the initial effect of an exogenous change and the total effects of that change. The total effects can be defined either as the direct and indirect effects (found from an input–output model that is open with respect to households) or as direct, indirect and induced effects (found from a model that is closed with respect to households).
The multipliers that incorporate direct and indirect effects are also known as simple multipliers. When direct, indirect and induced effects are captured, they are often called total multipliers.
Formula
In impact analysis the model is x = Lf, and the usefulness of the result, x will depend on the correctness of both the Leontief inverse L and the final-demand vector f.
The f vector incorporates the assumed or projected behavior of one or more final-demand elements, and accuracy in the estimation of these elements is also of paramount importance to generating an accurate result.
Miyazawa Multipliers
Miyazawa proposed[2], to decompose the elements of the Leontief inverse into three sides of propagation aspects, i.e.,
- internal propagation activities inside P sector's industries,
- internal propagation activities inside S sector's industries,
- intersectoral propagation activities between P and S sectors' industries.
