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Intermediate Production in a Stock- Flow Consistent Model with Environmental ExtensionsCombining Stock-Flow-Consistent Mod...
Outline 
•Motivation 
•Not actually a single model; an ongoing series of models 
•2 sector simplified model 
•15 sector ex...
Motivation 
1.(Dynamic) Input-Output Models 
2.With an SFC model determining composition and size of final demand 
3.Envir...
2 Sector Simplified Model 
•Similar to models in Monetary Economics (Godley & Lavoie) 
•But adds intermediate production 
...
Basic Structure of the Model 
•4 aggregated sectors: 
–Households 
–Industry 1 
–Industry 2 
–Government/Central Bank/Priv...
Simplest Model of Intermediate Production 
•Simple Leontief A Matrix: 
A = 0.25.250 
Matthew Berg, Brian Hartley, and Oliv...
Gross output 
풙푖푡=푨풊풋풙풊푡+풇풊푡+풛풊(푡) 
풙푖푡=[푰−푨풊풋]−ퟏ[풇풊푡+풛풊푡] 
Where: 
풙푖푡aregross output 
푨풊풋풙푖푡are intermediate production ...
Effect of an increase in energy sector markup 
Matthew Berg, Brian Hartley, and Oliver Richters 
Intermediate Production i...
15 Sector Environmentally Extended Model 
•Same basic structure as 2 sector model 
•But expanded to 15 sectors 
–Proof of ...
15 Sector Environmentally Extended Model 
•Input-Output Accounts Data 
–US Bureau of Economic Analysis, 1997-2012 Data 
•E...
Real Output (Physical Flow) 
Matthew Berg, Brian Hartley, and Oliver Richters 
Intermediate Production in a Stock-Flow Con...
Intermediate Investment ($USD Flow) 
Matthew Berg, Brian Hartley, and Oliver Richters 
Intermediate Production in a Stock-...
Non-Renewable Emission Relevant Energy Use by Sector (Physical Flow) 
Matthew Berg, Brian Hartley, and Oliver Richters 
In...
Greenhouse Gas Emissions (Physical Flow) 
Matthew Berg, Brian Hartley, and Oliver Richters 
Intermediate Production in a S...
2 sector model with supply constraints 
•Introduces capacity constraints / capacity utilization 
•Can produce cost-push in...
Cost-Push Inflation; Wage-Price Spiral 
Matthew Berg, Brian Hartley, and Oliver Richters 
Intermediate Production in a Sto...
Cost-Push Inflation; Wage-Price Spiral 
•Sequence: 
1.Shortage 
1.Quantity adjustment; deplete inventories; build more cap...
Increase in propensity to consume  bottlenecks cost-push inflation 
Matthew Berg, Brian Hartley, and Oliver Richters 
In...
Problems 
•How to treat expectations 
–Anticipating demand interdependencies (inventories, capacity) 
•Working capital (“i...
Applications/Extensions 
•Capacity Targeting 
–“Supply” and “Demand” are co-determined 
–Harrod/DomarProblem 
•Ecological/...
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ntermediate Production in a Stock-Flow Consistent Model with Environmental Extensions

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Stock Flow Consistent Modeling session at 12th International Conference

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ntermediate Production in a Stock-Flow Consistent Model with Environmental Extensions

  1. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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
  12. 12. Intermediate Investment ($USD Flow) Matthew Berg, Brian Hartley, and Oliver Richters Intermediate Production in a Stock-Flow Consistent Model with Environmental Extensions $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 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 Intermediate Investment (Millions of Deflated 2012 $USD) Agriculture Mining Utilities Construction Manufacturing Wholesale Trade Retail Trade Transportation Information FIRE Prof. and Bus. Services Education, Health, Social Arts, Ent, Rec Other Services
  13. 13. Non-Renewable Emission Relevant Energy Use by Sector (Physical Flow) Matthew Berg, Brian Hartley, and Oliver Richters Intermediate Production in a Stock-Flow Consistent Model with Environmental Extensions 0 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 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 Terajoules of Energy Used (Flow) Agriculture Mining Utilities Construction Manufacturing Wholesale Trade Retail Trade Transportation Information FIRE Prof. and Bus. Services Education, Health, Social Arts, Ent, Rec Other Services Final Demand
  14. 14. Greenhouse Gas Emissions (Physical Flow) Matthew Berg, Brian Hartley, and Oliver Richters Intermediate Production in a Stock-Flow Consistent Model with Environmental Extensions 0 10,000,000 20,000,000 30,000,000 40,000,000 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 Tons of Greenhouse Gas Emissions (Flow) CO2 CH4 N2O NOX SOX CO NMVOC NH3
  15. 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. 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. 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. 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. 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. 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

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