Long-term Projections of Consumer Demand in the United Kingdom: the Cambridge Growth Model

Abstract

The projections of consumer demand which are described in this paper are undertaken as part of a large disaggregated model of the United Kingdom. This model, which has been constructed over a number of years by Professor Richard Stone and his colleagues in Cambridge [4], contains some 1,000 equations as well as distinguishing thirty-five industries and more than forty commodities. Within such a system the accurate projection of consumer demand is a matter of considerable importance. Forecasts of industrial structure and of employment patterns are perhaps most immediately affected, but since the model is closed, these in turn reflect back via the distribution of income and relative prices to consumer demand itself. In the present discussion this simultaneity is ignored and we present only the consumption sector itself. More precisely, we describe how total consumers’ expenditure on non-durable goods is allocated between the different commodities in the budget. The total itself is determined as a function of disposable income using a model of the type described by Stone [9].