Multiplier Analysis in KK Systems

Abstract

This part of the book is concerned with the procedures which are nowadays used in the validation of KK systems. These procedures form the subject-matter of Chapter 8. The aim of the present chapter is to consider various techniques which are basic to these procedures and which must be explained before they can be properly presented. Essentially these techniques, known collectively as multiplier analysis, are concerned with finding out what a KK system has to say about the effects on the endogenous variables of specified changes in the exogenous variables. The techniques which are used for obtaining this information differ fundamentally as between linear and non-linear systems. Since all working KK systems are non-linear, it is non-linear multiplier techniques which are of key interest. However, the best way to approach these non-linear techniques is via the more straightforward linear techniques. This is the approach that will be adopted here. The present section will be devoted to a discussion of the linear multiplier techniques and section 7.2 to a discussion of the non-linear techniques.