Simulation Evidence Bearing on the Structure of Errors in MRIO Analysis

Abstract

In this paper the results are presented of a simulation concerning general tendencies of the MRIO (multiregional input-output) model toward overestimation or underestimation (positive or negative estimation errors). With the forecasts based on Isard's interregional input-output model as a standard, the frequency and volume of the sectoral outputs and intermediate outputs (INOU) estimation errors of the MRIO model are measured under two different economic structures and two different types of final-demands shocks. It is shown that under the condition of strong interconnectedness and overall increase in final demands, the MRIO model underestimates intraregional INOUs and overestimates interregional INOUs. In the case of economies with weak spatial interconnection and subject to a mixed change in the direction of final-demands shocks, the general tendency seems to be toward overestimation of sectoral outputs and INOUs of any sector that experiences a decline in demand for its final product. The model underestimates the other sectors.