Cost-Push IO Price Models and Their Relation with Quantities

Abstract

It is shown how, in the Type I single-region cost-push IO price model, under full competition, exogenous primary input price changes are fully passed on to all intermediate users that fully pass them on further, resulting in endogenous final output price changes. In the Type II interregional IO price model, additionally, export price changes are fully passed on to producers in importing regions or countries, while consumption price changes are fully passed on in wage rates, and further. Finally, it is shown how the Type II interregional IO price model may be combined with the corresponding quantity model by adding demand and supply price elasticities, which results in lower, more realistic price and quantity multipliers.