Chapter 1: When Technical Coefficient Changes Need to be Endogenous: The Case of Imports in the Inforum Italian Model

In contrast to the basic properties of the standard input-output (I-O) model (Miller & Blair, 2009) stated for example by Erik Dietzenbacher (IIOA Newsletter, 2015), INFORUM models have quantities and prices integrated. This distinctive feature of this class of multisectoral dynamic models designed for longterm policy simulation analyses poses peculiar and challenging modeling approaches (see Almon, 1991; 2016). This paper focuses on the interactions among imports, technical coefficients and price formation. First, the modeling approach to cope with the divergence between imports econometrically estimated and imports computed by means of account identities is shown. Second, the need to model technical coefficient changes for long-run forecasting is presented as empirical evidence from the model builder’s data set. Third, even taking into account the Hawkins-Simon (Hawkins & Simon, 1949) conditions, modeling imports in an open economy may easily lead to negative outputs. A procedure to “update” input-output technical coefficients to fix a multisectoral model during the forecasting process is developed. Although a number of contributions are devoted to the technical coefficients (for example Hewings & Sonis, 1992; Jalili, 1999; Nishimura, 2002; Sonis & Hewings, 1996) no one tackles the problem of modeling them. Finally, the algorithm to model technical coefficients in the INFORUM multisectoral models system is described.