The Development and Empirical Testing of Extended Input-Output Price Models

The focus in this paper is on the input-output price model as initially developed by Leontief nearly 60 years ago. A number of methodological refinements are proposed, including the formulation, for the first time, of an extended price model, with a disaggregated household sector. This model is presented in both static and dynamic versions. The effects of these refinements are investigated empirically by reference to an example of policy analysis. This relates to a hypothetical proposal to remove energy subsidies at the national level in Iran. The paper reports on the different results produced by each form of price model and also provides evidence on the sensitivity of individual parameter values. The paper concludes by considering the feasibility of constructing more comprehensive versions of the price model and identifying those elements of the model for which data are likely to be more difficult to obtain at national and regional levels.