Task 4: Constructing an unconstrained multiplier model

2007 SAM for Ghana with 3 sectors

Units: Millions of new Ghanaian Cedis (current prices) aagr aind asrv cagr cind csrv lab cap aagr 7,070 aind 9,084 asrv 8,842 cagr 606 831 126 cind 599 3,423 1,889 csrv 1,313 880 2,361 lab 4,215 2,254 3,248 cap 336 1,696 1,218 hrur 5,054 1,248 hurb 4,663 2,002 gov 160 1,869 343 s-i row 575 7,450 415 tot 7,070 9,084 8,842 7,805 18,403 9,599 9,717 3,250

PART 1: Calculating the inverted coefficient matrix

Coefficient matrix (M) Calculate coefficients by dividing each column through by its column total (see Table 4). aagr aind asrv cagr cind csrv lab cap aagr 0.91 aind 0.49 asrv 0.92 cagr 0.09 0.09 0.01 cind 0.08 0.38 0.21 csrv 0.19 0.10 0.27 lab 0.60 0.25 0.37 cap 0.05 0.19 0.14 hrur 0.52 hurb 0.48 gov 0.02 0.10 0.04 s-i row 0.07 0.40 0.04 tot 1.00 1.00 1.00 1.00 1.00 1.00 1.00

0.38 0.62

1.00

Indentity matrix (I)

Create an identity matrix by placing the value 1 in the diagonal cell entries aagr aind asrv cagr cind csrv lab aagr 1.00 aind 1.00 asrv 1.00 cagr 1.00 cind 1.00 csrv 1.00 lab cap hrur hurb gov s-i row

cap

1.00 1.00

Intermediate step (I-M) Subtract the matrix from the identity matrix aagr aind asrv cagr cind csrv lab aagr 1.00 -0.91 aind 1.00 -0.49 asrv 1.00 -0.92 cagr -0.09 -0.09 -0.01 1.00 cind -0.08 -0.38 -0.21 1.00 csrv -0.19 -0.10 -0.27 1.00 lab -0.60 -0.25 -0.37 cap -0.05 -0.19 -0.14 hrur hurb gov -0.02 -0.10 -0.04 s-i row -0.07 -0.40 -0.04 -0.04 Inverted coefficient matrix (I-M)-1 Invert the above matrix using the Excel "MINVERSE" formula. aagr aind asrv cagr cind aagr 1.54 0.47 0.43 1.39 aind 0.49 1.58 0.53 0.44 asrv 0.64 0.49 1.70 0.58 cagr 0.59 0.52 0.47 1.54 cind 0.99 1.18 1.08 0.90 csrv 0.70 0.53 0.76 0.63 lab 1.27 0.85 1.01 1.15 cap 0.25 0.38 0.35 0.23 hrur 0.76 0.59 0.66 0.69

cap

1.00 -0.52 -0.48 1.00 -0.38 -0.62

csrv 0.23 0.78 0.24 0.25 1.58 0.26 0.42 0.19 0.29 0.39 0.49 1.56 0.43 1.00 1.70 0.93 0.33 0.61

lab 0.51 0.46 0.44 0.56 0.93 0.48 1.58 0.17 0.88

cap 0.48 0.45 0.44 0.53 0.92 0.48 0.56 1.17 0.74

hurb gov s-i row

0.77 0.22 0.31 0.48

0.64 0.22 0.25 0.54

0.70 0.22 0.27 0.51

0.69 0.22 0.28 0.50

0.32 0.21 0.12 0.67

0.65 0.24 0.25 0.51

0.86 0.21 0.35 0.44

0.99 0.22 0.35 0.43

PART 2: The exgenous shock vector

Exogenous demand shock matrix (E) cagr cind csrv aagr aind asrv cagr 1.00 cind 1.00 csrv 1.00 lab cap hrur hurb gov s-i row

Hint This matrix shows the size of the exogenous demand shock for each It is initially set equal to one, which means a 1 million cedi increase You can change the size of the shock to any number.

Remember the unit of the shock and hence the multiplier is in value (i.e., millions of Ghanaian Cedi at 2007 prices).

It is necessary for matrix calculations that all of the cell entries have Note though that we are hiding all zero entries (see the Tools-Optio

PART 3: The multiplier effects

Multiplier effects Z = (I-M)-1 E Use the Excel "MMULT" formula to calculate the multiplier effects cagr cind csrv aagr 1.39 0.23 0.39 Output multipliers aind 0.44 0.78 0.49 asrv 0.58 0.24 1.56 cagr 1.54 0.25 0.43 cind 0.90 1.58 1.00 csrv 0.63 0.26 1.70 lab 1.15 0.42 0.93 GDP or value-added multipliers cap 0.23 0.19 0.33 hrur 0.69 0.29 0.61 Income multipliers hurb 0.69 0.32 0.65 gov 0.22 0.21 0.24 s-i 0.28 0.12 0.25 0.25 row 0.50 0.67 0.51

Total multiplier effects by type of multiplier

Output GDP Income

2.42 1.38 1.38

1.25 0.61 0.61 0.61

2.45 1.26 1.26

Note that income and GDP multipliers should be the same since the factor taxes in the Ghana SAM (i.e., all value-added is paid to house

Q1: Which sector has the largest output multiplier? A1: Services Q2: Which sector has the largest income multiplier? A2: Agriculture

Q3: What do you think is the main reason why the multipliers for industry so much lower than for other sectors? A3: There are large import-leakages for the industry, since so much of industrial demand is supplied by imported good Q4: What is the output multiplier effect of a by 35 million cedi increase in agricultural export demand? A4: 84.62 million cedi (to answer this question you need to replace the "1" in the agricultural column of the exogenous shock matrix with a "35" - you can then read the total output multiplier from the table above). Q5: Which sector generates the largest income multipler effects for urban households? A5: Services

hrur

hurb

gov

s-i

row

tot 7,070 9,084 8,842 7,805 18,403 9,599 9,717 3,250 7,257 9,097 4,052 4,680 8,439

2,453 2,553 705

1,773 3,238 1,421

4,680 1,805

2,016 2,020 1,115

547 840 1,547 7,257 940 1,725 9,097 860 4,052 4,680

409 1,592 739 548 8,439

SAM legend aagr Activity - agriculture aind Activity - industry asrv Activity - services cagr Commodity - agriculture cind Commodity - industry csrv Commodity - services lab Factor - labor cap Factor - capital hrur Households - rural hurb Households - urban gov Government s-i Saving/investment row Rest of the world tot Column and row total

hrur

hurb

gov

s-i

row

Hint The final three columns in the coefficient matrix are exo This means that we must leave these accounts as zero, s round-by-round indirect linkage effects. All other colum

0.34 0.35 0.10

0.19 0.36 0.16

0.21 1.00

0.10 0.19 1.00 1.00

0.00

hrur

hurb

gov

s-i

row

1.00 1.00 1.00 1.00 1.00 1.00

hrur

hurb

gov

s-i

row

Hint You must use Excel matrix algebra commands for this ex To do this, do the following four steps when entering th

-0.34 -0.35 -0.10

-0.19 -0.36 -0.16

1. Highlight the block where you want your answer to be 2. Then types equals (=) followed by the coordinates for 3. Then subtract (-) the coordinates for the entire coeffic 4. Finally, hold down the control (CTRL) and SHIFT keys,

1.00 1.00 -0.10 -0.19 1.00 1.00 1.00 1.00

Now if you move your cursor over the matrix to the left has "curly" parentheses or brackets around it (i.e., { and a formula is matrix algebra.

-0.21

hrur 0.59 0.47 0.43 0.65 0.96 0.47 0.63 0.18 1.39

hurb 0.41 0.44 0.44 0.46 0.89 0.48 0.52 0.16 0.33

gov

s-i

row

0.41 0.17 0.37 0.46

1.35 0.26 0.33 0.42 0.42

1.00 1.00 1.00 1.00

exogenous demand shock for each commodity. h means a 1 million cedi increase in demand for each commodity. ock to any number.

nd hence the multiplier is in value terms 2007 prices).

ons that all of the cell entries have a value, even if is zero. l zero entries (see the Tools-Options drop-down menu).

liers should be the same since there are no ., all value-added is paid to households).

ower than for other sectors? mand is supplied by imported goods

al export demand?

of the exogenous shock matrix

Activity - agriculture Activity - industry Activity - services Commodity - agriculture Commodity - industry Commodity - services Factor - labor Factor - capital Households - rural Households - urban Government Saving/investment Rest of the world Column and row total

s in the coefficient matrix are exogenous accounts in our model. ust leave these accounts as zero, since they do not generate ct linkage effects. All other columns should sum to one.

atrix algebra commands for this exercise. wing four steps when entering the formula:

where you want your answer to be (B67:N79). =) followed by the coordinates for the entire identity matrix (B49:N61). e coordinates for the entire coefficient matrix (B30:N42) (leave out the total row) he control (CTRL) and SHIFT keys, and then press enter

cursor over the matrix to the left you should see that your formula es or brackets around it (i.e., { and }). This is how Excel shows that

Task 4: Constructing an unconstrained multiplier model

2007 SAM for Ghana with 3 sectors

Units: Millions of new Ghanaian Cedis (current prices) aagr aind asrv cagr cind csrv lab cap aagr 7,070 aind 9,084 asrv 8,842 cagr 606 831 126 cind 599 3,423 1,889 csrv 1,313 880 2,361 lab 4,215 2,254 3,248 cap 336 1,696 1,218 hrur 5,054 1,248 hurb 4,663 2,002 gov 160 1,869 343 s-i row 575 7,450 415 tot 7,070 9,084 8,842 7,805 18,403 9,599 9,717 3,250

PART 1: Calculating the inverted coefficient matrix

Coefficient matrix (M) Calculate coefficients by dividing each column through by its column total (see Figure 5). aagr aind asrv cagr cind csrv lab cap aagr 0.91 aind 0.49 asrv 0.92 cagr 0.09 0.09 0.01 cind 0.08 0.38 0.21 csrv 0.19 0.10 0.27 lab 0.60 0.25 0.37 cap 0.05 0.19 0.14 hrur 0.52 hurb 0.48 gov 0.02 0.10 0.04 s-i row 0.07 0.40 0.04 tot 1.00 1.00 1.00 1.00 1.00 1.00 1.00

0.38 0.62

1.00

Indentity matrix (I)

Create an identity matrix by placing the value 1 in the diagonal cell entries aagr aind asrv cagr cind csrv lab aagr 1.00 aind 1.00 asrv 1.00 cagr 1.00 cind 1.00 csrv 1.00 lab cap hrur hurb gov s-i row

cap

1.00 1.00

Intermediate step (I-M) Subtract the matrix from the identity matrix aagr aind asrv cagr cind csrv lab aagr 1.00 -0.91 aind 1.00 -0.49 asrv 1.00 -0.92 cagr -0.09 -0.09 -0.01 1.00 cind -0.08 -0.38 -0.21 1.00 csrv -0.19 -0.10 -0.27 1.00 lab -0.60 -0.25 -0.37 cap -0.05 -0.19 -0.14 hrur hurb gov -0.02 -0.10 -0.04 s-i row -0.07 -0.40 -0.04

cap

1.00 -0.52 -0.48 1.00 -0.38 -0.62

Inverted coefficient matrix (I-M)-1 Invert the above matrix using the Excel "MINVERSE" formula. aagr aind asrv cagr cind aagr 1.54 0.47 0.43 1.39 aind 0.49 1.58 0.53 0.44 asrv 0.64 0.49 1.70 0.58 cagr 0.59 0.52 0.47 1.54 cind 0.99 1.18 1.08 0.90 csrv 0.70 0.53 0.76 0.63 lab 1.27 0.85 1.01 1.15 cap 0.25 0.38 0.35 0.23 hrur 0.76 0.59 0.66 0.69

csrv 0.23 0.78 0.24 0.25 1.58 0.26 0.42 0.19 0.29 0.39 0.49 1.56 0.43 1.00 1.70 0.93 0.33 0.61

lab 0.51 0.46 0.44 0.56 0.93 0.48 1.58 0.17 0.88

cap 0.48 0.45 0.44 0.53 0.92 0.48 0.56 1.17 0.74

hurb gov s-i row

0.77 0.22 0.31 0.48

0.64 0.22 0.25 0.54

0.70 0.22 0.27 0.51

0.69 0.22 0.28 0.50

0.32 0.21 0.12 0.67

0.65 0.24 0.25 0.51

0.86 0.21 0.35 0.44

0.99 0.22 0.35 0.43

PART 2: The exgenous shock vector

Exogenous demand shock matrix (E) cagr cind csrv aagr aind asrv cagr 1.00 cind 1.00 csrv 1.00 lab cap hrur hurb gov s-i row

Hint This matrix shows the size of the exogenous demand shock for each It is initially set equal to one, which means a 1 million cedi increase You can change the size of the shock to any number.

Remember the unit of the shock and hence the multiplier is in value (i.e., millions of Ghanaian Cedi at 2007 prices).

It is necessary for matrix calculations that all of the cell entries have

PART 3: The multiplier effects

Multiplier effects Z = (I-M)-1 E Use the Excel "MMULT" formula to calculate the multiplier effects cagr cind csrv aagr 1.39 0.23 0.39 Output multipliers aind 0.44 0.78 0.49 asrv 0.58 0.24 1.56 cagr 1.54 0.25 0.43 cind 0.90 1.58 1.00 csrv 0.63 0.26 1.70 lab 1.15 0.42 0.93 GDP or value-added multipliers cap 0.23 0.19 0.33 hrur 0.69 0.29 0.61 Income multipliers hurb 0.69 0.32 0.65 gov 0.22 0.21 0.24 s-i 0.28 0.12 0.25 row 0.50 0.67 0.51

Total multiplier effects by type of multiplier

Output GDP Income

2.42 1.38 1.38

1.25 0.61 0.61

2.45 1.26 1.26

Note that income and GDP multipliers should be the same since the factor taxes in the Ghana SAM (i.e., all value-added is paid to house

Q1: If we make government consumption demand endogenous in the multiplier model, what happens to the size of o A1: Increase

Q2: Why do the multipliers change when govenrment is made endogenous? A2: Before when tax revenues rose during each round of the multiplier process, we did not let government consumpt Now that government spending is endogenous, any increase in taxes raises government spending. This further stim for services, which now increase production more than before. The multiplier effects are therefore larger.

hrur

hurb

gov

s-i

row

tot 7,070 9,084 8,842 7,805 18,403 9,599 9,717 3,250 7,257 9,097 4,052 4,680 8,439

2,453 2,553 705

1,773 3,238 1,421

4,680 1,805

2,016 2,020 1,115

547 840 1,547 7,257 940 1,725 9,097 860 4,052 4,680

409 1,592 739 548 8,439

SAM legend aagr Activity - agriculture aind Activity - industry asrv Activity - services cagr Commodity - agriculture cind Commodity - industry csrv Commodity - services lab Factor - labor cap Factor - capital hrur Households - rural hurb Households - urban gov Government s-i Saving/investment row Rest of the world tot Column and row total

hrur

hurb

gov

s-i

row

Hint The final three columns in the coefficient matrix are exo This means that we must leave these accounts as zero, s round-by-round indirect linkage effects. All other colum

0.34 0.35 0.10

0.19 0.36 0.16

0.21 1.00

0.10 0.19 1.00

hrur

hurb

gov

s-i

row

1.00 1.00 1.00 1.00 1.00

hrur

hurb

gov

s-i

row

Hint You must use Excel matrix algebra commands for this ex To do this, do the following four steps when entering th

-0.34 -0.35 -0.10

-0.19 -0.36 -0.16

1. Highlight the block where you want your answer to be 2. Then types equals (=) followed by the coordinates for 3. Then subtract (-) the coordinates for the entire coeffic 4. Finally, hold down the control (CTRL) and SHIFT keys,

1.00 1.00 -0.10 -0.19 1.00 1.00 1.00

Now if you move your cursor over the matrix to the left has "curly" parentheses or brackets around it (i.e., { and a formula is matrix algebra.

-0.21

hrur 0.59 0.47 0.43 0.65 0.96 0.47 0.63 0.18 1.39

hurb 0.41 0.44 0.44 0.46 0.89 0.48 0.52 0.16 0.33

gov

s-i

row

0.41 0.17 0.37 0.46

1.35 0.26 0.33 0.42

1.00 1.00 1.00

exogenous demand shock for each commodity. h means a 1 million cedi increase in demand for each commodity. ock to any number.

nd hence the multiplier is in value terms 2007 prices).

ons that all of the cell entries have a value, even if is zero.

PART 4: Deciding on exogenous demand components

Exogenous demand components Enter a one if the component of demand is exogenous in the model (zero otherwise). gov s-i row 1 1 1 This extended setup allows you to choose exogenous demand components. If 1 is chosen, then the respective component is treated as exogenous. If 0 is chosen, then the respective component is treated as endogenous. Please see code in the M matrix' exogenous accounts above to see how we implement this. You cannot set all demand components to be endogenous at the same time. By default we set government equal to zero, so that it is now endogenous in our model.

liers should be the same since there are no ., all value-added is paid to households).

del, what happens to the size of our multiplier effects?

did not let government consumption increase. ernment spending. This further stimulates demand fects are therefore larger.

Activity - agriculture Activity - industry Activity - services Commodity - agriculture Commodity - industry Commodity - services Factor - labor Factor - capital Households - rural Households - urban Government Saving/investment Rest of the world Column and row total

s in the coefficient matrix are exogenous accounts in our model. ust leave these accounts as zero, since they do not generate ct linkage effects. All other columns should sum to one.

atrix algebra commands for this exercise. wing four steps when entering the formula:

where you want your answer to be (B67:N79). =) followed by the coordinates for the entire identity matrix (B49:N61). e coordinates for the entire coefficient matrix (B30:N42) (leave out the total row) he control (CTRL) and SHIFT keys, and then press enter

cursor over the matrix to the left you should see that your formula es or brackets around it (i.e., { and }). This is how Excel shows that

ement this.