A Simple Test for Technological Change in the Input-Output Model

Music City Center 

The input-output (IO) model is widely used to predict the impact of a sectoral demand shock on other sectors of the economy. The model is basically a linear transformation of the demand into a corresponding output vector, with the transformation matrix being a function of the so-called technological matrix. The technological matrix is usually computed from the Make and Use Tables (MUT) of the System of National Accounts and is commonly updated every time the National Accounts Office updates the MUT. So far, however, no statistical test has been proposed to compare whether the differences between two alternative technological matrices are large enough to justify the replacement of one by the other. The paper proposes such a test based on Wald's chi-square statistic and performs it on simulated MUT sets. The types of (technological) hypotheses that might be tested with the new test and some of its limitations are discussed at the end of the paper.

Input-Ouput model

technological change

National Accounts

Make and Use Tables

Wald's statistic

chi-square 

Government Statistics Section