An input-output multiplier-accelerator growth model.

OSCAR DE JUAN
University of Castilla La Mancha. Albacete (Spain)
e-mail: oscar.de!an"!clm.es
14
th
nternational Con!erence on nput-Output "echni#ue$
%ontreal& Octo'er 1(-1)& *((*.
A+S"RAC".
#conomic $ro%th has been !s!ally analy&ed from a macroeconomic standpoint. 'his may
be an acceptable (first appro)imation*+ very !sef!l+ indeed+ for didactical p!rposes. ,!t it
is not the most convenient to !nderstand the historical process of economic $ro%th that
!s!ally is propelled by specific ind!stries and conveys str!ct!ral chan$es. A social
acco!ntin$ matri)+ as the one %e develop in section 1+ provides the proper base for $ro%th
analysis. A second trait of the most pop!lar models of $ro%th is their s!pply-side
orientation. 'he st!dy of s!pply is certainly necessary to !nderstand the limits of the
economy and certain e-!ilibri!m conditions+ as %e shall ill!strate in section 2 in the revie%
of von .e!mann/s model. 0et+ if capitalism is a demand-constrained system (as 1eynes
and 1alec2i ar$!ed)+ economic $ro%th sho!ld be approached from the demand side+
distin$!ishin$ bet%een a!tonomo!s and ind!ced demand. 3n a Sch!mpeterian fashion+
a!tonomo!s demand can be related to the la!nchin$ of innovative firms into ne% prod!cts
and mar2ets. 3n their e)pansion these firms p!ll an ind!ced demand of cons!mption and
capital $oods. 'he constr!ction of a disa$$re$ated m!ltiplier-accelerator in section 3 %ill
stand probably as the main practical contrib!tion of o!r paper.
Key words: Economic growth, input-output analysis, social accounting matrices,
disaggregated multiplier, disaggregated accelerator.
De Juan: A disaggregated multiplier-accelerator model of growth.
1. ntroduction, a SA% to account !or growth.
#conomic $ro%th has been !s!ally analy&ed from a macroeconomic standpoint.
'his may be an acceptable (first appro)imation*+ very !sef!l+ indeed+ for didactical
p!rposes. ,!t it is not the most convenient to !nderstand the historical process of
economic $ro%th that !s!ally is propelled by specific ind!stries and conveys str!ct!ral
chan$es. 3n this section %e shall present the basic traits of a social acco!ntin$ matri)
(SAM) s!itable for the analysis of $ro%th.
.ational acco!nts and inp!t o!tp!t tables reprod!ce -!ite %ell the classical
approach to the economy. 'he #conomics of Adam Smith and 4avid 5icardo p!rported to
analy&e the process of prod!ction+ distrib!tion and destination of the s!rpl!s (net final
prod!ct+ val!e added or income). 'he three spheres are inter%oven. 6rod!ctivity sets a
limit to s!rpl!s or income $eneration. 4istrib!tion of this income bet%een %a$es and
profits infl!ences the e)pendit!re in cons!mption and investment. 7ro%th is the o!tcome
of investment.
8!r first proposal is to maintain this (classical str!ct!re* of national acco!nts in the
constr!ction of a SAM. 9or a closed economy+ o!r SAM %ill e)hibit the three bloc2s of
table 1.
:
'he first one sho%s ho% prod!ction is $enerated and ho% it is distrib!ted
bet%een intermediate cons!mption+ final cons!mption and investment. 'he balance is the
val!e added or primary incomes. 'he second dia$onal bloc2 ('r) acco!nts for
redistrib!tion that allo%s to pass from primary incomes to disposable incomes. A part of
disposable income %ill finance final cons!mption+ the rest is defined as savin$s. 'o
finance investment (o!r third hori&ontal bloc2)+ the ind!stry may co!nt %ith firms/ o%n
savin$s+ ho!seholds/ savin$s and capital transfers ('r-2). 'he last dia$onal bloc2 (99)
s!mmari&es financial acco!nts+ i.e. the flo%s of finance+ $enerally intermediated by
financial a$ents. Addin$ a s!bscript %o!ld allo% !s to 2no% the specific financial
instr!ment: deposits+ credits+ bonds+ or shares.
'he advanta$e of a SAM over national acco!nts and 3-8 tables is that it provides
more detail on economic a$ents and their relationships. Let !s $ive some hints of the detail
convenient for a model of $ro%th. 9ollo%in$ the traditional methodolo$y %e shall
distin$!ish bet%een activities+ factors and instit!tions. 3n t!rn+ instit!tions of the national
economy are s!bdivided in non financial corporations+ financial instit!tions+ ho!seholds
and $overnment.
(:) Activities as industries producing goods. ;e identify ind!stries %ith $oods. 'his
ass!mption does not deny the possibility of oint prod!ction. 3t simply implies the
possibility to obtain a symmetric matri) for interind!stry transactions (T+ in table 1)
%here the n!mber of col!mns (ind!stries) coincides %ith the n!mber of ro%s ($oods).
4isa$$re$ation by ind!stries sho!ld be as lar$e as possible. At least one sho!ld
separate (a) intermediate $oods accordin$ to its role in prod!ction (ener$y+ ra%
materials+ ind!strial $oods+ services to enterprises<)= (b) final cons!mption $oods
:
'o simplify o!r e)position %e shall refer to a closed economy. 'he introd!ction of the (rest of the %orld*
sector %o!ld re-!ire simply the addition of a ne% col!mn and ro%.
>
De Juan: A disaggregated multiplier-accelerator model of growth.
accordin$ to their income elasticity (ordinary $oods and services= l!)!ry $oods and
services)= (c) fi)ed capital $oods by type (str!ct!res+ e-!ipment and vehicles for
ind!stry)= (d) collective services provided by $overnment.
(>) Factors of production and distribution of income. 3n o!r model of $ro%th (that has a
Classical inspiration+ still alive in national acco!ntin$ methodolo$y) labor is the only
factor of prod!ction+ properly spea2in$. 3t receives incomes accordin$ to the %a$e
stip!lated in labor contract. 'he rest of val!e added constit!tes an (operatin$ s!rpl!s*
that belon$s to firms !ntil it is (redistrib!ted* in ta)es+ interest payments+ rents and
dividends. ;or2in$ %ith a SAM %e co!ld introd!ce different types of labor each one
receivin$ a specific 2ind of income. 'o red!ce comple)ity+ %e propose to refer !st to
%a$es that are redistrib!ted amon$ ho!seholds classified accordin$ to the main so!rce
of income. At the same time+ %e introd!ce a matri) of labor/s flo%s ?L@ %ith so many
ro%s as types of labor (non -!alified+ -!alified+ self-employed<) and so many ro%s as
ind!stries.
(A) Institutions and expenditures.
a. Non financial corporations firms or enterprises !"#. 'he first possibility
%o!ld be to identify them %ith ind!stries. 'his is the reason %hy in table 1 %e !se
E both for ind!stries and enterprises. Another possibility+ more !sef!l for certain
p!rposes+ is to separate firms accordin$ to si&e andBor o%nership (local+ national or
m!ltinational).
b. Financial institutions. 'he 2ey distinction separates (monetary financial
instit!tions* (the ban2in$ sector) and (non-monetary financial instit!tions* (m!t!al
and pension f!nds). 'o abrid$e %e shall refer to both as B.
c. $ouse%olds. 9or o!r p!rposes it is convenient to differentiate ho!seholds accordin$
to their e)pendit!re patterns. H1 stands for ho!seholds of non -!alified %or2ers+
%hose income is rather lo% and devoted entirely to cons!mption. H2: ho!seholds of
-!alified %or2ers %ith medi!m incomes+ most of them cons!med in a bas2et that
incl!des l!)!ry $oods. H3: ho!seholds of mana$ers+ self-employed+ property income
recipients= a s!bstantial part of s!ch incomes is s!pposed to be saved= in their
cons!mption bas2et+ l!)!ry $oods are -!ite important. Hp: ho!seholds of pensioners
and other transfers recipients+ %hose e)pendit!re patters are similar to C:.
d. &overnment. 'he !s!al convention is that it (cons!mes* the ($eneral services*
provided by a special ind!stry identified %ith $overnment. ,y means of ta)es and
transfers+ it pays a 2ey role in the redistrib!tion of income.
So far %e have $athered information abo!t the flo%s of prod!ction+ distrib!tion and
e)pendit!res. A complete acco!nt sho!ld provide information abo!t the funds or stoc's
that ma2e possible s!ch flo%s. 'his information co!ld be $athered by means of satellite
accounts.
(. )opulation and %uman capital. Statistics of total and active pop!lation+ classified by
the level of ed!cation are very helpf!l. Comparin$ them %ith the matri) of act!al labor
flo%s (L) %e can fi$!re o!t str!ct!ral !nemployment and possible bottlenec2s+ as %ell.
3n $eneral+ f!ll employment is not a cr!cial constraint in o!r classical model of $ro%th+
A
De Juan: A disaggregated multiplier-accelerator model of growth.
since the n!mber of ho!rs can increase dramatically as2in$ for additional ho!rs or
allo%in$ emi$rants of third %orld co!ntries to enter into o!r labor mar2et.

*. )%ysical capital. 'he stoc2s of physical capital are re$istered in a matri) ?K@ %ith so
many col!mns as ind!stries and so many ro%s as capital $oods. 'he basic capital $oods
are: str!ct!res+ e-!ipment and ind!strial vehicles.
>
'his matri)+ %hen presented in the
form of coefficients ?'@+ %ill play an important role in the e)planation of investment and
the limits of $ro%th.
+. Natural resources. 3n the comp!tation of net prod!ct+ the nat!ral reso!rces !sed !p in
the process of prod!ction are not disco!nted. 'his is an important shortcomin$ of
national acco!nts. 3ts sol!tion re-!ires+ to be$in %ith+ a balance of nat!ral reso!rces+
and some meas!res of their cons!mption or deteriorations in the prod!ction of each
ind!stry. ;ith s!ch information+ %e can fi$!re o!t %hether the act!al path of $ro%th is
s!stainable or not. 3n o!r model %e ass!me it is for three complementary reasons: (a)
%e analy&e a rather short period of time (: to :D years)= (b) %e are considerin$ the
act!al rates of $ro%th that are rather lo% (D to EF)= (c) %e allo% for technical chan$e
that+ !p to a certain e)tent+ tries to economi&e the reso!rces presentin$ problems of
scarcity.
,. Financial balances. 9inance is a necessary part of the prod!ction process+ since firms
have to pay p!rchases and %a$es before the $oods are sold. 9inancial assets are
contin!o!sly created (iss!ed) and destroyed (repaid). .ot%ithstandin$+ at any moment
%e can present the balance of financial assets in circ!lation. 'hey are traded in the
financial mar2ets+ %hose development may help or impair the process of prod!ction and
acc!m!lation.
-able (.
>
4epreciation of capital is a diffic!lt iss!e. 'he best acco!nt %o!ld differentiate capital $oods by type and
a$e+ !sin$ the scheme of (oint prod!ction* (La$er+ :GGH). A second-best acco!nt s!pposes that capital $oods
are repaired contin!o!sly so that their prod!ction capabilities are maintained d!rin$ a certain period. 'his
period differs for each type of capital item and for the partic!lar rate of obsolescence of each ind!stry. 3n this
paper+ %e ass!me that depreciation allo%ances have been already introd!ced in the transaction matri)+ T. 3f
so the (operatin$ s!rpl!s* refers to (net profits*+ %hile (fi)ed capital formation* refers to (net investment*.
I
De Juan: A disaggregated multiplier-accelerator model of growth.
*. Suppl- and demand con$trained $-$tem$. .on Neumann/$ versus
0e-ne$ian/$ model$ o! growth.
1ornai (:GHG) confronts s!pply or reso!rce - constrained systems versus demand
-constrained systems. Socialist economies %o!ld belon$ to the first $ro!p= capitalist
economies to the second. Under socialism+ firms try to $ro% as far as possible to f!lfill the
ambitio!s plans of $overnment. Unfort!nately they are -!ite often impaired by
bottlenec2s. Capitalist firms+ on the contrary+ do not prod!ce as m!ch as their capacity
%o!ld allo%+ b!t as m!ch as they e)pect to sell at (normal prices*= at the same time+
demand e)pectations are fi$!red o!t in a conservative mood+ since the ris2 of ban2r!ptcy is
hi$h. Act!ally+ this is nothin$ b!t the principle o eective demand en!nciated by 1eynes
and 1alec2i in the thirties. A realistic model of $ro%th for a capitalist economy sho!ld be
based on this principle. 0et+ s!pply side models as the one proposed by Jon .e!mann in
:GAK accomplish an important f!nction: they inform abo!t the limits of the model and
certain e-!ilibri!m conditions. Let !s start by revie%in$ this model.
a1 .on Neumann/$ $uppl--$ide model.
Jon .e!mann %as interested in findin$ the ma)im!m rate of $ro%th correspondin$
to a $iven technolo$y
A
. ;a$es and cons!mption are set e-!al to the s!bsistence level and
introd!ced in the interind!stry transaction matri) as any intermediate inp!t. 3n igure 2, %e
%rite T!+ instead of T+ to remind !s that it incl!des somethin$ else. 9rom T! %e derive the
traditional coefficient matri) ("!):
?:@
:
L MN M

= # T "
Analy&in$ the ei$enval!es and ei$envectors of matri) "! %e can obtain val!able
information abo!t the limits and conditions of $ro%th..
:. 'he inverse of the ma)im!m ei$enval!e of "! coincides %ith the ma)im!m rate of
profit and the ma)im!m rate of $ro%th.
?>@
g r L
L
:
L = =

>. 'he ri$ht - hand ei$envector of "! stands for a vector of -!antities indicatin$ the o!tp!t
composition that allo%s the system to e)pand at the ma)im!m speed (
gL
) .
I

A. 'he left hand ei$envector of "! stands for the vector of prices that allo%s the firms in
each ind!stry to obtain the ma)im!m rate of profit
) L (r
and to finance their o%n
e)pansion at the ma)im!m rate (
gL
).
-able *
Jon .e!mann/s contrib!tion to $ro%th theory is impressive. 3t %o!ld seem
impossible to reveal so many secrets concernin$ prod!ction and $ro%th in so fe% pa$esO
A
As a matter of fact+ he admits different technolo$ies for the prod!ction of any prod!ct+ so his first step is the
choice of techni-!e. 3n o!r simplified presentation %e ass!me that the best techni-!e is already 2no%n.
Another simplifyin$ ass!mption of the a!thor is that there is no fi)ed capital. 3n o!r model+ %here there is
fi)ed capital+ the 2ey matri) %o!ld not be the matri) of intermediate coefficients+ b!t the matri) of direct and
indirect fi)ed capital coefficients.
I
'he condition is that the rate of s!rpl!s be !niform for any prod!ct. 'he rate of s!rpl!s is defined by the
follo%in$ ratio: s!rpl!s of prod!ct i B amo!nt of i !sed in the %hole system as an inp!t.
E
De Juan: A disaggregated multiplier-accelerator model of growth.
8f co!rse+ %e have to be conscio!s of the meanin$ of the ass!mptions and the limitations
concernin$ the applicability of the model.
:) $ages and consumption are reduced at the subsistence level. 'his allo%s Jon .emann
to obtain the ma%imum rate of $ro%th for a $iven techni-!e. 'here is no problem to fi)
%a$es and cons!mption at the (historical level*. 'hen %e sho!ld obtain the potential
rate of $ro%th correspondin$ to a $iven technolo$y and cons!mption patterns+ as
Carrod did in :GAG for the a$$re$ate economy.
>) "ll the wages, and only wages, are consumed. 'he removal of this ass!mption %o!ld
destroy some ele$ant properties of the model b!t not the content. 'he rate of profit
%o!ld not lon$er coincide %ith the rate of $ro%th. 0et %e co!ld relate both of them by
means of the Cambrid$e e-!ation proposed by 1aldor (:GEP).
A) &roits are entirely and automatically saved and invested. 'his i$nores the problem of
effective demand and renders the model !seless to analy&e the act!al dynamics of
capitalism. 9irms do not prod!ce al%ays at f!ll capacity. .either do they
systematically invest the savin$s correspondin$ to f!ll capacity income.
I) "ggregate demand reduces itsel to induced consumption and induced investment.
'here is no room for a vector of proper a!tonomo!s demand that %o!ld allo% !s to
identify the (locomotives* of the system. 'here is no room for the str!ct!ral chan$es
that characteri&ed the act!al path of capitalist economies. 4espite bein$ a disa$$re$ated
model+ $ro%th is harmonic.
3n o!r opinion+ the practical lesson %e can derive from the von .e!mann/s model is
that e-!ilibri!m prices are embedded in the very str!ct!re of prod!ction. Sraffa (:GPD) p!t
the iss!e in a more clear %ay. 3n a capitalist competitive economy+ the prices of prod!ction
are determined by technolo$y and the real %a$e. 'hey are the prices than ens!re a !niform
rate of profit for the representative firms of all ind!stries. 'hey are the prices that play as
$ravity centers of mar2et prices: e)cesses of demand (at s!ch prices) call for -!antity
ad!stments. 4eviations are possible b!t they are rather a short r!n phenomenon in
ind!stries prod!cin$ perishable $oods. 'hese ideas provide a firm base for b!ildin$ !p a
m!ltiplier-accelerator model %here firms ad!st to chan$es in demand via -!antities+
instead of prices.
'1 nput-output demand 2 $ide model$.
Most inp!t-o!tp!t models can be characteri&ed as demand-side. 'o be$in %ith+ the
traditional (inverse of Leontief* is nothin$ b!t a technical m!ltiplier that allo%s !s to pass
from the vector of final demand to the vector of total o!tp!t. 3n the follo%in$ form!la #
stands for the col!mn vector of total prod!ction= d for the col!mn vector of final demand
that incl!des final cons!mption+ investment+ real p!blic e)pendit!re and e)ports= and " for
the matri) of technical coefficients:
?A@ [ ] d " ' # N
:
= .
'he traditional inp!t o!tp!t m!ltiplier endo$enei&es cons!mption e)pendit!res
addin$ a ne% col!mn (the cons!mption vector) and a ne% ro% (incomes devoted to
cons!mption). 'he (interind!stry transaction matri)* becomes T
(
+ and the matri) of
P
De Juan: A disaggregated multiplier-accelerator model of growth.
coefficients+ "
(
. 'otal o!tp!t %ill be a m!ltiple of a!tonomo!s demand (da) that is
s!pposed to incl!de investment+ real p!blic e)pendit!re and e)ports.
?I@ [ ]
a
d N A - 3 -
:
+
=
'he m!ltiplier derived from a SAM str!ct!re (after the seminal paper by 6yatt and
5o!nd+ :GHG) follo%s the same analytical scheme+ %ith the advanta$es that it provides
more detailed information and it can be bro2en do%n into several components+ sho%in$ the
transmission mechanism from prod!ction to incomes and to e)pendit!res.
E
'hese
advanta$es are also present in o!r model+ since it is also derived from a SAM. 3ts
contrib!tion is that+ by endo$enei&in$ a part of investment+ it yields a more po%erf!l
m!ltiplier+ a m!ltiplier able to e)plain more %ith less.
P
'he novelties of the model are
ill!strated in table 3 and can be s!mmari&ed in the follo%in$ points.
-able +
(:) 'he matri) of a!tonomo!s demand ()) is defined in a more strict sense. 3t incl!des+ as
!s!al+ e)ports and real p!blic e)pendit!res. ,!t contrary to the traditional models+ it
does not incl!de the part of investment aimed at e)pandin$ prod!ctive capacity. 8nly
t%o types of investment are considered (proper a!tonomo!s demand*. 'he first is
(residential investment* by ho!seholds. 'he second can be termed (moderni&ation
investment* and refers to the introd!ction by firms of ne% prod!cts. 3n empirical
st!dies %e need a more precise definition. 8!r proposal is to incl!de as (proper
a!tonomo!s demand* those $oods %hose rate of $ro%th is clearly different from
avera$e.
(>) 3nd!ced cons!mption (*!) refers to the incomes+ that $ro% pari passu %ith prod!ction
and are systematically cons!med. 'he %ay to endo$enei&e cons!mption in order to
obtain the multiplier %ill be e)plained in the section 3.
(A) 3nd!ced investment or acc!m!lation ('!) refers to the prod!ction of ne% capital $oods
in order to e)pand capacity pari passu %ith demand.. 'his is the acceleration principle
that %ill also be e)plained in section 3. Cere %e shall simply %arn+ that the
(ind!cement* in investment is a m!ch more fra$ile one. Savin$s %ill be acc!m!lated
only if entreprene!rs contin!e to be optimistic abo!t demand e)pansion.
(I) 8!r m!ltiplier-accelerator appears as a compact matri): ?'-"
+
@
-:
. Contrary to traditional
inp!t-o!tp!t m!ltipliers+ %e do not add ne% col!mns and ro%s to the interind!stry
matri) T. ;e simple enlar$e the fi$!res in each cell by addin$ !p: (a) intermediate
cons!mption= (b) fi)ed capital cons!mption= (c) ind!ced final cons!mption= (d) ind!ced
investment. ,y doin$ so %e obtain the matri) of -!antities T
+
+ and the correspondin$
matri) of coefficients+ "
+
.
(E) 'his m!ltiplier-accelerator allo%s !s to comp!te the increase in total prod!ction (-)+ net
income (0) or employment (L) associated to an increase in proper a!tonomo!s demand
(Q). 'he interpretation is the conventional one. 3n the simple 1eynesian or inp!t-
E
'he lin2 bet%een income of different social $ro!ps and cons!mption %as introd!ced in 1alec2i/s
(a$$re$ate) m!ltiplier and developed in Miya&a%a Masse$!i Rs (disa$$re$ated) m!ltiplier (Miya&a%a S
Masse$!i+ :GPA). 1!r& (:GKE) derives a m!ltiplier that relates prod!ction+ distrib!tion and demand.
P
Leontief/s (dynamic inverse* (:GHD) is the first attempt to endo$enei&e investment+ altho!$h by a different
method and for different p!rposes. Ce ta2es final cons!mption at year t as a!tonomo!s demand or (s!rpl!s*.
Ce then derives the stoc2s of capital $oods necessary to prod!ce at t s!ch (s!rpl!s*+ and the path of formation
of the capital stoc2 d!rin$ the precedin$ years.
H
De Juan: A disaggregated multiplier-accelerator model of growth.
o!tp!t m!ltiplier+ an increase in investment (i.e. the prod!ction of ne% machines to
enlar$e capacity) ca!ses an increase in o!tp!t and incomes !ntil the savin$s stemmin$
from them e-!al in val!e the ne% investments. 3n o!r m!ltiplier-accelerator model+ an
increase in the prod!ction of the $oods considered (proper a!tonomo!s demand* %ill
ca!se an increase in prod!ction !ntil the a!tonomo!s incomes stemmin$ from it e-!als
in val!e the increase in demand+ i.e. !ntil TU V TQ.
#-!ations ?Ea@ and ?Eb@ provide an al$ebraic s!mmary of the precedin$ ideas:
?Ea@
[ ] ) L N (bein$ N
M M
: W W
:
W
W

= =
+ = + + + =
# T " ) " ' #
) T ) ' * T #
?E.b@
[ ]
[ ]
[ ] ) l
) v
)
=
=
=

N A - 3 N L
N A - 3 N L 0
N A - 3 -
:
W
:
W
:
W
vL is a dia$onal matri) %hose terms are the ratios of val!e added in the total o!tp!t of any
ind!stry. l is a rectan$!lar matri) that sho%s the labor coefficients by types of labor and
ind!stries.
c1 3raphical illu$tration$.
Let !s concl!de the section %ith some $raphical ill!strations. ,igure 1 presents the
dynamics of a s!pply constrained system as it is the case of socialist economies and te)t-
boo2 capitalist economies %here the problem of effective demand is ass!med a%ay. At
time (D* the stoc2 of acc!m!lated capital amo!nts to 1o. 7iven technical conditions (the
capital B labor ratio V and the capital B o!tp!t ratio V 2) firms %ill employ Lo %or2ers and
%ill prod!ce a level of o!tp!t 0o. A part of it %ill be cons!med (CVc0+ bein$ c the
propensity to cons!me that !nder the ass!mption that %a$es and only %a$es are cons!med
coincides %ith the ratio %B). 'he remainin$ part stands for profits that are s!pposed to be
saved and invested. At the be$innin$ of year :+ the stoc2 of capital %o!ld be
1:V1oX3oV1oXSo. 9ollo%in$ the scheme+ year after year+ the economy %o!ld e)perience a
harmonic+ efficient and re$!lar $ro%th at the potential rate.
Figure (
,igure 2 ill!strates the path of $ro%th in a demand constrained system as capitalism
is s!pposed to be. 'he independent variable is a!tonomo!s demand. Let !s s!ppose that
at year (D* a!tonomo!s demand amo!nts to "o and it is $ro%in$ at g-. 'o prod!ce s!ch
$oods firms need to hire ne% %or2ers (%ho cons!me most of their income)+ and to b!y
capital $oods that allo% an efficient e)pansion of prod!ction at a rate g-.
H
'his (ind!ced
demand* is capt!red by the multiplier . accelerator mechanism and can be represented
dra%in$ a parallel to /i. 3t intersects %ith the prod!ction f!nction at 0o. 7iven o!tp!t and
labor prod!ctivity %e obtain the level of employment (1o20o3) that may fall belo% f!ll
H
'he ind!ced demand of intermediate $oods is hidden in macroeconomic models. Act!ally it is acco!nted as
(indirect labor* and (indirect fi)ed capital*.
K
De Juan: A disaggregated multiplier-accelerator model of growth.
employment. 7iven the capital B o!tp!t ratio (4) or de capital B labor ratio () %e obtain the
stoc2 of capital that %ill be effectively !sed. 3t may also fall belo% the e)istin$ stoc2+
implyin$ !nder!tili&ation of capital. ,!t firms do desire to %or2 at f!ll capacity+ so they
%ill try to recover it by modifyin$ investment decisions.
Figure *
Figure +
,igure 3 $oes deeper into the dynamics of a!tonomo!s demand. 'he en$ine of
$ro%th consists in the introd!ction of ne% $oods and services by the innovative firms.
K
Us!ally they sprin$ in (cl!sters* and they sp!r the demand for complementary $oods.
Some $oods (s!bstit!tes) may be displaced+ b!t $enerally the balance is positive (creative
destr!ction). 3n the $raphic+ the hori&ontal arro% !nder the headin$ of innovation eects,
encaps!lates s!ch comple) relationships. /iussion eects refer to the potential mar2et
%hich faces any ne% $ood. Capital $oods and d!rable cons!mption $oods !s!ally evolve
follo%in$ a lo$istic c!rve+ as the one depicted in fi$!re A. At the be$innin$ the rate of
$ro%th is very lo%. 3t accelerates as more people 2no% abo!t the prod!ct and they have the
income to p!rchase it. After a point+ the mar2et for the ne% prod!ct sho%s symptoms of
sat!ration and its rate of $ro%th decelerates. /ragging eects refer to ind!ced
cons!mption and investment that are capt!red by the m!ltiplier and accelerator
mechanisms that %e shall comp!te in the ne)t section.
4. Computation o! the multiplier-accelerator.
5a1 nduced con$umption.
3n the 5eneral Theory+ 1eynes ass!med that the b!l2 of private cons!mption
depended on the disposable income of ho!seholds (0d). 'he hypothesis %as verified at that
time+ and has been ratified ever since. 3n the second half of the >D
th
cent!ry the propensity
to cons!me of ho!seholds in advanced co!ntries has been -!ite hi$h and stable. 1alec2i
advanced a similar statement st!dyin$ in depth the relation bet%een cons!mption
e)pendit!res and income distrib!tion. 'he a$$re$ate propensity to cons!me (c) %o!ld be a
%ei$hted avera$e of %or2ers/ propensity to cons!me o!t of %a$es (cw that is s!pposed to be
close to :) and capitalists/ propensity to cons!me o!t of profits (cr that is s!pposed to be
rather lo%). 3f so+ the a$$re$ate ind!ced cons!mption co!ld be comp!ted by the follo%in$
e-!ation %here $! stands for after-ta) %a$es and 6! for after-ta) profits.
?P@
) B M N( ) B M N( N M 0 6 c 0 $ c 0 c *
r w d
+ = =
8!r social acco!ntin$ matri) allo%s !s to present more social $ro!ps+ each one
characteri&ed by a partic!lar propensity to cons!me and a partic!lar cons!mption bas2et.
4e Y!an+ Cadarso S CZrcoles+ :GGI+ presented an ind!ced cons!mption f!nction ?*!@ of the
follo%in$ type:
K
3n o!r description %e are follo%in$ Sch!mpeter (:G:>). A recent boo2 by ,a!mol (>DD>) proves that
Sch!mpeterian ideas are still !sef!l.
G
De Juan: A disaggregated multiplier-accelerator model of growth.
?H@
[ ] [ ] [ ]
hn
hh
%
hh
nh nn
Tr 0 T ' &* /* * + = N N N M
'he e)pression sho!ld be read from ri$ht to left.
G
8!r point of depart!re is the matri) of
val!e added or primary incomes matri) ?0@. ;e add c!rrent transfers ?Tr@ and disco!nt
direct ta)es [T%\ to obtain disposable income. 6rem!ltiplyin$ by [6C\ %e obtain the
income systematically cons!med. 3n the dia$onal of [6C\ %e find the cons!mption
propensities of the different ho!seholds. ?4C@ indicates the distrib!tion of cons!mption
e)pendit!res by $oods.
:D
3t is a rectan$!lar matri) %ith n ro%s (each one for any ind!stry-
prod!ct)+ and h col!mns (each one for each ho!sehold $ro!p). ,y constr!ction+ any
col!mn of ?4C@ adds !p to :.
::
5'1 nduced in6e$tment.
3nvestment may be also split into a!tonomo!s and ind!ced e)pendit!res. 'he
a!tonomo!s part+ or (moderni&ation investment*+ is related to the la!nchin$ of firms into
ne% $oods and mar2ets. 3n principle+ it does not increase capacity= it simply replaces old
capital $oods by ne% ones that %ill ma2e possible f!t!res increases in prod!ctivity.
(3nd!ced investment*+ (e)pansionary investment* or+ simply+ (acc!m!lation* can be
e)plained by the accelerator mechanism. ,y acc!m!latin$ capital+ firms try to increase
prod!ctive capacity in order to match+ in efficient conditions+ the permanent increases in
demand. 'he accelerator investment f!nction is the only one that yields acceptable
res!lts. 6robably+ after separatin$ the a!tonomo!s part+ the f!nction %o!ld behave even
better.
Let !s start o!r presentation in a macroeconomic settin$ that %e e)plained %ith
more detail in 4e Y!an (:GGG). 'he a$$re$ate investment of firms at the end of period (t*
depends on the e)pected increases in a$$re$ate demand. ;e can %rite:
?K@
t - t t t t
0 g 4 / g 4 / / g 4 ' N N N N ) N( N M
:
= = =
+
4 is the normal or desired capital B final o!tp!t ratio. ;hen the act!al ratio (4t) e-!als the
desired one+ the de$ree of capacity !tili&ation is at its normal level: u2434tV:. (g7/t* is the
e)pected increase in a$$re$ate demand+ that is s!pposed to end!re for $ood. A feat!re of
the 1eynesian model %e are b!ildin$ !p is that some components of demand have an
a!tonomo!s rate of $ro%th (g-) %hile the others adapt passively to the former. 3f so %e can
!se g- instead of g. ;e can also %rite 0t instead of /t+ since final prod!ction and income
(0) ad!sts to e)pected final demand.
G
An$!lar brac2ets imply a dia$onal matri). ' is the identity matri). 'he s!bscripts refer to the dimensions of
the matrices. ;e start %ith a matri) of (h* ro%s and (n* col!mns= so many ro%s as ho!sehold $ro!ps (and
related instit!tions)= so many col!mns as ind!stries. ;e end !p %ith a (nNn] matri)+ altho!$h only $oods
devoted to final cons!mption %ill have positive fi$!res in the correspondin$ ro%.
:D
3nformation abo!t propensities to cons!me and e)pendit!re patterns can be obtained from family b!d$et
statistics. 'he problem is that the cons!mption $ro!ps of s!ch statistics do not coincide %ith the cons!mption
$oods contemplated in inp!t o!tp!t tables. A brid$e is necessary to oin both statistics. #conometrics %ill
help to fill certain $aps.
::
3n the complete model %e sho!ld s!btract val!e added ta)es (8"T) and the imports of cons!mption $oods
(9c) in order to obtain (domestic ind!ced cons!mption* (*:). 'he ne% e-!ation %o!ld loo2 li2e:
*:2 ;'-9c<7;'-8"T<7*!.
:D
De Juan: A disaggregated multiplier-accelerator model of growth.
'he precedin$ e-!ation %or2s %hen the economy is in the e-!ilibri!m path of
$ro%th+ i.e. %hen 4 is initially at the desired level and the e)pected $ro%th of a!tonomo!s
demand coincides %ith Carrod/s %arranted rate of $ro%th. 3n dise-!ilibri!m conditions
the form!la has to be modified. S!ppose that+ for any reason+ a!tonomo!s demand remains
sta$nant at t. 3nvestment at the end of t-: %ill be nil and some e)cess of inventories (Ei,t)
are bo!nd to appear. 3n t+ firms %ill disco!nt s!ch !ndesired inventories from e)pected
demand. 6rod!ction %ill fall and the previo!s stoc2 of capital %ill e)ceed the re-!ired one.
#)cess of capacity (E2+t) %ill sho% !p+ implyin$ 4=4t, u>1. At the end of t+ even if
a!tonomo!s demand res!mes the previo!s rate of $ro%th+ these e)cesses of capacity %ill be
disco!nted from the investment comp!ted in ?K@. 3n dise-!ilibri!m sit!ations+ the
investment f!nction %o!ld loo2 li2e:
?G@ t a
t
t 4 t i t t t
0 g
u
4
E E / / g 4 ' N N )) ( N( N M
+ : + :
=
+
'he compact form at the ri$ht-hand side is a ro!$h appro)imation. ;hat matters (as %e
have sho%n in 4e Y!an+ :GGG) is that+ %henever firms behave as indicated+ the e)cesses
(shorta$es) of capacity are bo!nd to disappear. 3n the absence of ne% shoc2s+ the economy
%o!ld soon recover a f!ll capacity path of $ro%th.
'he translation of these ideas to the disa$$re$ated model is not a strai$htfor%ard
iss!e. 'o be$in %ith final demand and final o!tp!t has to be replaced by a dia$onal matri)
of total o!tp!t+ [-\. 'he a$$re$ate capital Bnet o!tp!t ratio %ill become a matri) of direct
capital coefficients: ?4@ V ??@N[#\
-:
. And %hat %o!ld be the rate of $ro%th^ ;e cannot
!se the rate of $ro%th of a!tonomo!s demand+ since it consists of several $oods each one
$ro%in$ at a specific rate. 6!t in a positive %ay. ;e co!ld ta2e a sin$le $ro%th rate for all
ind!stries (g-)+ only %hen all the components of the vector of a!tonomo!s demand are
$ro%in$ at the same rate+ and this rate coincides %ith the %arranted or potential one. 3f so+
the path of $ro%th %o!ld be harmonic+ steady and efficient< 0et this ass!mption %o!ld
p!t !s o!tside the m!ltisectoral capitalist economy %e try to !nderstand. 9or the sha2e of
realism %e sho!ld chan$e the scalar g- for matri) [$\. 3n the dia$onal of this matri) %e
find the e)pected rate of $ro%th of total o!tp!t in each ind!stry+ a rate that firms e)trapolate
from the past. ;henever there is a chan$e in the rate of $ro%th of one or several
components of a!tonomo!s demand+ e)cesses (ins!fficiencies) of inventories and capacity
%ill appear. 9irms %ill behave as indicated in ?G@ in order to $et rid of them. After a time
they %ill learn the ne% rate of $ro%th of the demand for their prod!cts and their investment
decisions %ill be determined by the follo%in$ e)pression:
?:D@
[ ] [ ]
nn nn
nn nn
# g 4 ' N N M =

:>
5c1 "he multiplier-accelerator.
'he m!ltiplier-accelerator that capt!res ind!ced cons!mption and investment for the
a$$re$ated economy %o!ld be:
:>
9or b!ildin$ the accelerator %e are only interested in ind!ced (domestic* investment. 'he imports of
capital $oods sho!ld be therefore disco!nted. 'he res!lt %o!ld be: ':2?'-?4@7'!.
::
De Juan: A disaggregated multiplier-accelerator model of growth.
?::@
4g c
=
:
:
W

A similar form!la can be derived for o!r m!ltisector economy. 3np!t-o!tp!t tables
and SAM present %ith a $reat detail the interind!stry transaction matri)+ ?T@n+n. 3t $ives
information abo!t the intermediate inp!ts re-!ired by each ind!stry to s!stain its act!al
level of prod!ction.
:A
;e have comp!ted the matrices of ind!ced cons!mption ?*!@ and
ind!ced investment ?'!@. Addin$ them !p %e obtain the enlar$ed transaction matri) ?T
+
@:
:I
?:>@ M M
W
' * T T + + =
4ividin$ by the total o!tp!t of each ind!stry %e obtain the (economic matri)* ?"
+
@+
%hose cells are e-!al or $reater than the !s!al technical matri) ?"@.
?:A@
: W W
L N

= # T "
.o% %e comp!te:
?:I@ [ ]
:
W

= " ' 9@
9@ is the m!ltiplier-accelerator of total or $ross o!tp!t+ %e %here loo2in$ for. #ach
col!mn informs !s abo!t the direct and indirect effects of a !nitary e)pansion of ind!stry
over the o!tp!t of all the ind!stries that provide reso!rces to . 'he provision may be in
direct or indirect %ay+ and the (reso!rces* are defined in the broadest sense so to incl!de
intermediate $oods+ final cons!mption $oods to attend the cons!mption stemmed from the
ne% incomes+ and fi)ed capital $oods to e)pand capacity at the re-!ired rate.
'otal o!tp!t involves the !s!al problem of do!ble co!ntin$. 5esearchers !s!ally
are more interested in obtainin$ the dra$$in$ effects on net income. ;e can comp!te it by
prem!ltiplyin$ ?9@@ by the dia$onal matri) vL
+ %hich indicates+ for each ind!stry+ the
proportion of val!e added in total o!tp!t:
?:E@ [ ]
:
W
N L

= " ' v 90
'o obtain the m!ltiplier-accelerator of employment %e have !st to prem!ltiply
?9@@ by the matri) of labor coefficients ?l@. #ach col!mn of 91 informs abo!t the
-!antities and -!alities of the obs created in the %hole system after the !nitary e)pansion
of ind!stry . A$ain+ it acco!nts for the obs created in the prod!ction of intermediate
$oods+ final cons!mption $oods and fi)ed capital $oods.
?:P@ [ ]
:
W
N

= " ' l 91
Let !s concl!de o!r analysis of the m!ltiplier-accelerator %ith some notes abo!t its
e)istence and stability. 9@ e)ists and is stable provided the addition of the elements of any
col!mn of the economic matri) ("
+
) is lo%er than :.
:E
'he viability in prod!ction ass!res
:A
;e have ass!med that T matri) incl!ded+ as %ell+ fi)ed capital cons!mption. 3n practice this is not the case
so %e sho!ld comp!te the matri) of capital cons!mption by $oods and ind!stries before addin$ it to
intermediate cons!mption.
:I
;e remind that for the p!rposes of this section+ all the matrices sho!ld contain only domestic p!rchases.
'he dimension of all these matrices is n7n + so %e can omit the s!bscripts and the s-!are brac2ets.
:E
'his is a s!fficient condition.
:>
De Juan: A disaggregated multiplier-accelerator model of growth.
that col!mns of matri) of technical coefficients (") are lo%er than :. After the
introd!ction of final cons!mption coefficients in matri) "
(
the condition for stability is not
%arranted. ;e have to r!le o!t the possibility that ho!seholds+ via credit+ cons!me
systematically more than they earn. After the introd!ction of investment coefficients %e
obtain "
+
and the chances to ens!re stability are still lo%er. 'he e)pected rate of $ro%th of
demand cannot be %hatsoever.
'he proof is easier from a macroeconomic standpoint. 'o $et a positive
(economically si$nificant) val!e for the a$$re$ated m!ltiplier-accelerator $iven in ?::@ the
e)pected $ro%th of demand sho!ld be lo%er than Carrod/s %arranted rate.
?:H@
4
s
4
c
g =

<
:
'he last ratio can be e)pressed as s34 %here s stands for the part of income systematically
saved and 4 for the desired ratio capital B o!tp!t. 3f the propensity to cons!me is red!ced to
&ero+ s becomes :+ and the ma)im!m rate of $ro%th is :B4+ %hich coincides %ith Jon
.e!mann/s
gL
.
'hin2s are more comple) in a m!ltisector economy. Credits allo%s %or2ers and
firms of ind!stry to cons!me and invest above the incomes $enerated in its process of
prod!ction. 0et+ they cannot behave eternally in this %ay. Credits have be repaid o!t of
%a$es and profits. 'he disa$$re$ated m!ltiplier-accelerator sho!ld be derived from a SAM
%here the str!ct!res of prod!ction+ distrib!tion and e)pendit!re 2eep certain conditions of
viability. 'he application of this instr!ment is aimed at capt!rin$ the normal e)pansion of
ind!stries interrelated via prod!ction+ cons!mption and investment. 3nd!stries $ro%in$ at
a hi$her rate sho!ld be located in the a!tonomo!s demand vector (the (m!ltiplicand*)+ not
in the m!ltiplier-accelerator matri).
4. Conclu$ion$.
Capitalism is a demand-constrained system. 'his %as o!r first 1eynesian
hypothesis that has been fertili&ed %ith some ideas of Sch!mpeter. 'he motor of capitalist
economies has been located in the innovative firms la!nchin$ into ne% $oods and ne%
mar2ets. 3n their e)pansion+ these firms dra$ alon$ the prod!ction of the ind!stries
interrelated %ith them in the broadest sense and either in a direct or indirect %ay. ;hat
2ind of $ro%th can %e e)pect form these hypothesis^ Certainly it has nothin$ to do %ith
the harmonic+ steady and efficient $ro%th derived from s!pply side models+ either classical
(as the von .e!mann/s model) or neoclassical. 7ro%th %ill be+ precisely+ characteri&ed by
the opposite notes.
(:) -ransformational growt%. 'he innovative firms %ill probably $ro%+ for a %hile+ very
-!ic2ly. 'he ind!stry+ they belon$ to+ %ill accelerate its rate of $ro%th+ !nless the
e)pansion of the ne% $oods res!lts in a displacement of old ones. 'he rest of the
economy is s!pposed to $ro% at the avera$e rate of a!tonomo!s demand+ ta2in$ into
acco!nt both the creative and destr!ctive forces. ,!t as soon as %e allo% for technical
chan$e (associated %ith the introd!ction of ne% capital $oods)+ the sectoral rates of
$ro%th are bo!nd to diver$e. 3nd!stries receivin$ the b!l2 of benefits of technical
innovation %ill $ro% faster+ provided their price elasticity is hi$h eno!$h. 6asinetti
:A
De Juan: A disaggregated multiplier-accelerator model of growth.
(:GK:)+ reminds !s (#n$el/s la%* to concl!de that the system %ill e)pand by the front
of ind!stries %ith hi$her income elasticity. 3n a n!tshell+ the te)t boo2 (harmonic
$ro%th* %ill ma2e %ay to (transformational $ro%th*+ to !se the term coined by .ell
(:GGK).
(>) Irregular growt%. 3f the e)pansion of ne% $oods follo%s a lo$istic c!rve (as the one
depicted in fi$!res > and A) $ro%th %ill not be steady b!t irre$!lar. 'he economy %ill
e)perience a lon$ %ave of prosperity after the introd!ction of an epoch ma2in$
innovation or a cl!ster of innovations %ith important diff!sion and dra$$in$ effects.
;hen the mar2et for these prod!cts become sat!rated+ a lon$ %ave of depression may
start !nless other innovations ta2e the relay. #mbedded in s!ch lon$ %aves %e can
e)pect to find medi!m term cycles (!s!ally of a chaotic type)+ ca!sed by ad!stments
via inventories and capacity !tili&ation.
(A) Inneficient growt%. 9irms try contin!o!sly to ad!st capacity at the desired level. ,!t
any chan$e in the e)o$eno!s rate of $ro%th or any fail!re in demand e)pectations is
bo!nd to ca!se an inefficient !se of capacity. 'he inefficiencies %o!ld be even clearer
sho!ld they be meas!red by the rate of !nemployment.
8!r model ill!minates these $eneral and important characteristics of capitalist
economies. 3n addition+ it may !sef!l for more concrete tas2s. 3t helps comp!te the impact
on total o!tp!t+ net income and employment associated to the e)pansion of some ind!stries
and firms+ both %hen they s!pply domestic or forei$n mar2ets. 'he m!ltiplier-accelerator
%e propose has t%o important advanta$es over the !s!al m!ltiplier derived from inp!t-
o!tp!t tables or SAM. (a) 3t is more complete since it incl!des ind!ced investment of the
accelerator type= (b) 3t is easier to !se and interpret since it is presented in a compact form.
:I
De Juan: A disaggregated multiplier-accelerator model of growth.
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in ,53CALL S 4# YUA. (eds.): EconomAa polAtica del crecimiento, luctuaciones y crisis+
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the dynamics o the wealth o nations+ Cambrid$e+ Cambrid$e University 6ress.
:E
De Juan: A disaggregated multiplier-accelerator model of growth.
60A''+ 7. S 58U.4+ Y. (:GHG): (Acco!ntin$ and fi)ed price m!ltipliers in a social
acco!ntin$ matri) frame%or2*+ The Economic Bournal+ n. KG+ p. KED-KHA.
SCCUM6#'#5+ Y. (:G:>): Theorie der $irtschatlichen Entwic4lung+ M!nich+ Jerla$
4!n2er S C!mbolt.
S5A99A+ 6. (:GPD): &roduction o commodities by means o commodities. &relude to a
criti#ue o economic theory+ Cambrid$e+ Cambrid$e University 6ress.
J8. .#UMA..+ Y. (:GIE-P): (A model of $eneral e-!ilibri!m*+ The 6eview o
Economic Ctudies+ v. b333+ p. :-G. (8ri$inal 7erman paper of :GAK).
:P
De Juan: A disaggregated multiplier-accelerator model of growth.
-able (: A .A/ suitable for growt% analysis.
6584UC'38. C8.SUM6'38. 3.J#S'M#.'
#:+ #> < #n L= #= C: <Cp = 7= 9 #:...#n= C:...Cp= 7= 9
9. 6584UC'38.
(sales) #:
#>
<
#n
9.C8.SUM6'38.
L(%a$es)
#(profits)
C:
<
Cp
7
9
9. 3.J#S'M#.'
#:
<
#n
C:
<
Cp
7
9
.ymbols: # : activities or ind!stries that prod!ce $oods= %e ma2e them to coincide %ith the instit!tion
(enterprises*= L V labor= C V ho!seholds= 7 V $overnment= 9 V financial instit!tions= ' V interind!strial
transactions or intermediate cons!mption= C V final cons!mption= 3 V investment= 0 V val!e added as primary
incomes= 'r V c!rrent transfers= it incl!des ta)es= 'r-2 V capital transfers= S V savin$s= 99 V financial flo%s.
-able *: A .A/ for t%e 0on Neumann supply1side model.
6rod!ction Cons!mption 3nvestment
9. 6rod!ction
(sales) '/ 3
9. Cons!mption
(%a$es above
s!bsistence)
9. 3nvestment
(profits) 5VSV3
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De Juan: A disaggregated multiplier-accelerator model of growth.
-able +.a : A .A/ for a demand constrained economy.
6rod!ction 3nd!ced
Cons!mption
3nd. 3nvestment
(Acc!m!lation)
A!tonomo!s
4emand
9. 6rod!ction
'
C/
3/
8
9. 3nd!ced
Cons!mption 0 'r
9. Acc!m!lation
S/ 'r2X99
A!t. 3ncome
to 9. A!t. 4.
-able +.b: A compacted .A/ for a demand constrained economy.
7ro%in$ reprod!ction
:+ > < n
A!tonomo!s 4emand
9. 7ro%in$ 5eprod!ction
:
<
n
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W
8
A!tonomo!s 3ncome
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De Juan: A disaggregated multiplier-accelerator model of growth.
Figure (: &rowt% in a supply 1 constrained system.
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Figure *: &rowt% in a demand 1 constrained system.
A!tonomo!s demand

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A$. 4 and net o!tp!t
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De Juan: A disaggregated multiplier-accelerator model of growth.
Figure +: -%e dynamics of autonomous demand.
A!tonomo!s 4emand
4iff!sion effect

3nnovation effects
time
4ra$$in$ effect.
3nd!ced demand
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