Simulating Wages and House Prices Using the NEG

The paper incorporates house prices within an NEG framework leading to the spatial distributions of wages, prices and income. The model assumes that all expenditure goes to firms under a monopolistic competition market structure, that labour efficiency units are appropriate, and that spatial equilibrium exists. The house price model coefficients are estimated outside the NEG model, allowing an econometric analysis of the significance of relevant covariates. The paper illustrates the methodology by estimating wages, income and prices for small administrative areas in Great Britain, and uses the model to simulate the effects of an exogenous employment shock.

Beyond Intermediates: The Role of Consumption and Commuting in the Construction of Local Input-Output Tables

It is a well-established fact in the literature on simulating Input-Output tables that mechanical methods for estimating intermediate trade lead to biased results where cross-hauling is underestimated and Type-I multipliers are overstated. Repeated findings to this effect have led to a primary emphasis on advocating the accurate estimation of intermediate trade flows. This paper reviews previous research and argues for a qualification of the consensus view: When simulating IO tables, construction approaches need to consider spill-over effects driven by wage and consumption flows. In particular, for the case of metropolitan economies, wage and consumption flows are important if accurate Type-II multipliers are to be obtained. This is demonstrated by constructing an interregional Input-Output table, which captures interdependencies between a city and its commuter belt, nested within the wider regional economy. In addition to identifying interdependencies caused by interregional intermediate purchases, data on subregional household incomes and commuter flows are used to identify interdependencies from wage payments and household consumption. The construction of the table is varied around a range of assumptions on intermediate trade and household consumption to capture the sensitivity of multipliers.