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CH 5 - Linear Models & Matrix Algebra (Cont.)
CH 5 - Linear Models & Matrix Algebra (Cont.)
1
5.1 Conditions for Nonsingularity of a Matrix
3.4 Solution of a General-equilibrium System (p.
44)
x +y=8 1 1 x 8
x+y=9 1 1 y 9
(inconsistent &
dependent)
2x + y = 12 2 1 x 12
4x + 2y= 24 4 2 y 24
(dependent)
2x + 3y = 58
2 3 x 58
y = 18 0 1 y 18
x + y = 20
1 1 20
(over identified &
dependent)
2
5.1 Conditions for Non-singularity of a Matrix
3.4 Solution of a General-equilibrium
y
System (p. 44)
x+y=9
Sometimes equations
x+y=8
are not consistent, and
they produce two x
parallel lines.
y
(contradict) 12
Sometimes one equation
For both the
is a multiple of the
equations
Slope is -1
other. (redundant)
3
5.1 Conditions for Non-singularity of a Matrix
Necessary versus sufficient conditions
Conditions for non-singularity
Rank of a matrix
4
5.1 Elementary Row Operations (p. 86)
Interchange any two rows in a matrix
Multiply or divide any row by a scalar k (k 0)
Addition of k times any row to another row
5
5.1 Conditions for Nonsingularity of a Matrix
Conditions for non-singularity, Rank of a matrix (p. 86)
0 11 4 1 0 0
2 6 2 0 1 0 swap rows 1 & 3
4 1 0 0 0 1
4 1 0 0 0 1 *1 4
2 6 2 0 1 0
0 11 4 1 0 0
1 1 4 0 0 0 1 4 * 2
2 6 2 0 1 0
0 11 4 1 0 0
1 1 4 0 0 0 1 4
0 11 2 2 0 1 1 2 * 2 11
0 11 4 1 0 0
1 1 4 0 0 0 1 4
0 1 4 11 0 2 11 1 11 *11
0 11 4 1 0 0
1 1 4 0 0 0 1 4
0 1 4 11 0 2 11 1 11
0 0 0 1 2 1
6
5.1 Conditions for Non-singularity of a Matrix
Conditions for non-singularity, Rank of a matrix (p. 96)
Elementary row operations
4 1 2 1 0 0 1 0 3 0 0 1
5 2 1 0 1 0 swap rows 1 & 3 0 1 7 0 1 2 5 2
1 0 3 0 0 1 0 0 3 1 1 2 3 2 * 1 3
1 0 3 0 0 1 * 5 1 0 3 0 0 1
5 2 1 0 1 0 0 1 7 0 1 2 5 2
4 1 2 1 0 0 0 0 1 1 3 1 6 1 2 * 7
1 0 3 0 0 1 1 0 3 0 0 1
0 2 14 0 1 5 *1 2 0 1 0 7 3 5 3 1
4 1 2 1 0 0 0 0 1 1 3 1 6 1 2 * 3
1 0 3 0 0 1 * 4 1 0 0 1 1 2 1 2
0 1 7 0 1 2 5 2 1 0 7 3 5 3
0 1
4 1 2 1 0 0 0 0 1 1 3 1 6 1 2
1 0 3 0 0 1
0 1 7 0 1 2 5 2 * 1
0 1 10 1 0 4
7
5.1 Conditions for Nonsingularity of a Matrix
Conditions for non-singularity, Rank of a matrix (p. 96)
4 1 2
1 0 3 0 0 1
A 5 2 1
0 1 7 0 1 2 5 2
1 0 3
0 0 3 1 1 2 3 2 * 1 3
Determinant of A 6
1 0 3 0 0 1
6 - 14 - 2
1 7 0 1 2 5 2
Cofactors of A - 3 10 1 0
0 0 1 1 3 1 6 1 2 * 7
- 3 6 3
6 -3 - 3 1 0 3 0 0 1
Adjoint A - 14 10 6 0 1 0 7 3 5 3 1
- 2 1 3 0 0 1 1 3 1 6 1 2 * 3
6 - 3 - 3 1 0 0 1 1 2 1 2
1
Inverse of A - 14 10 6
0 1 0 7 3 5 3 1
6
- 2 1 3 0 0 1 1 3 1 6 1 2
8
5.1 Conditions for Non-singularity of a Matrix
Conditions for non-singularity, Rank of a matrix (p. 96)
9
5.2 Test of Non-singularity by Use of Determinant
Determinants and non-singularity
Evaluating a third-order determinant
Evaluating an nth order determent by Laplace expansion
11
5.2 Test of Non-singularity by Use of
Determinant and permutations: 2x2 and 3x3
a11 a12
A a11 a 22 a 21 a12 scalar
a 21 a 22
a11 a12 a13
A a21 a22 a 23
a 31 a 32 a 33
a11a 22 a 33 a12 a 23a 31 a13a 21a 32
a11a 32 a 23 a12 a 21a 33 a13a 22 a 31 scalar
n
A a1 j C2 j scalar
j 1
12
5.2 Test of Non-singularity by Use of
Determinant : 4 x 4 permutations = 24
13
5.2 Evaluating a third-order determinant
Evaluating an 3 order determent by Laplace expansion
Laplace Expansion by cofactors;
if /A/ = 0, then /A/ is singular, i.e., under identified
14
5.2 Determinants
Pattern of the signs for cofactor minors
C ij 1
i j
M ij
15
5.1 Conditions for Nonsingularity of a Matrix
Conditions for non-singularity, Rank of a matrix (p. 96)
4 1 2
1 0 3 0 0 1
A 5 2 1
0 1 7 0 1 2 5 2
1 0 3
0 0 3 1 1 2 3 2 * 1 3
Determinant of A 6
1 0 3 0 0 1
6 - 14 - 2
1 7 0 1 2 5 2
Cofactors of A - 3 10 1 0
0 0 1 1 3 1 6 1 2 * 7
- 3 6 3
6 -3 - 3 1 0 3 0 0 1
Adjoint A - 14 10 6 0 1 0 7 3 5 3 1
- 2 1 3 0 0 1 1 3 1 6 1 2 * 3
6 - 3 - 3 1 0 0 1 1 2 1 2
1
Inverse of A - 14 10 6
0 1 0 7 3 5 3 1
6
- 2 1 3 0 0 1 1 3 1 6 1 2
16
5.1 Conditions for Non-singularity of a Matrix
Conditions for non-singularity, Rank of a matrix (p. 96)
17
5.2 Evaluating a determinant
Laplace expansion of a 3rd order determinant
by cofactors. If /A/ = 0, then singular
9 8 7
5 4 6 4 6 5
A 6 5 4 9 8 7
2 1 3 1 3 2
3 2 1
5 8 86 12 7 12 15 27 48 21 0
9
18
5.2 Test of Non-singularity by Use
of Determinant
1 2 3 P(3,3) = 3!/(3-3)! = 6
A 4 5 6 |A| = 1(5)9 + 2(6)7 + 3(8)4
-3(5)7 – 6(8)1 – 9(4)2
7 8 9 Expansion by cofactors
|A|= (1)c11 + (2)c12 + (3)c13
C11 = 5(9) – 6(8)
C12 = -4(9) + 6(7)
C13 = 4(8) – 7(5)
Expansion across any row or
column will give the same #
for the determinant
19
5.3 Basic Properties of Determinants
Properties I to III (related to elementary row
operations)
20
5.3 Basic Properties of Determinants
Properties IV to VI
21
5.3 Basic Properties of Determinants
Properties I to V
22
5.4 Finding the Inverse
aka “the hard way”
Steps in computing the Inverse Matrix and
solving for x
1. Find the determinant |A| using expansion by
cofactors.
If |A| =0, the inverse does not exist.
2. Use cofactors from step 1 and complete the
cofactor matrix.
3. Transpose the cofactor matrix => adjA
4. Divide adj.A by |A| => A-1
5. Post multiply matrix A-1 by column vector of
constants d to solve for the vector of variables x
23
1 1 1 Y 1 1 1 I0
A= b 1 0 C 1 b 1 g b a bT
1 b g 0
g 0 1 G g g 1 b 0
1 1 1
A b 1 0 1 b g
g 0 1 I 0 a bT0
Y
1 b g
1 b g
1 1 g g bI 0 1 g a bT0
C
1 b g
C=
1 b 1 b
g I 0 a bT0
1 1 1 G
C’= b 1 g b 1 b g
g g 1 b
24
5.4 Finding the Inverse Matrix
Expansion of a determinant by alien cofactors,
Property VI, Matrix inversion
Expansion by alien n
This property of
determinants is
important when
defining the inverse
(A-1)
25
5.4 A Inverse (A-1)
Inverse of A is A-1
if and only if A is square (nxn) and rank
=n
AA-1 = A-1A = I
We are interested in
A-1 because x=A-1d
26
5.4 matrix A: matrix of parameters from the
equation Ax=d
27
C: Matrix of cofactors of A
28
C' or adjoint A: Transpose matrix of the
cofactors of A
29
AC'
30
Matrix AC'
n n n
a1 j C1 j a1 j C2 j a1 j Cnj
j 1 j 1 j 1
n n n
a2 j C1 j a2 j C2 j a2 j Cnj
j 1 j 1 j 1
AC
nxn
n n n
a C
nj 1j a nj C 2j a nj C nj
j 1 j 1 j 1
31
A 0 0 1 0 0
0 1 0
0 A 0
AC A A In
0 0 A 0 0 1
32
Inverse of A
C
AC A I n 1 1
A A A I
A
AC C
I A 1
A A
C C
A I x d
*
A A
33
Solving for X using Matrix
Inversion
adjA
x
*
d
A
34
5.4 A Inverse, solving for P
P1 1 2 c 2 co
P c c
2 1 2 2 1 1 c1 o
co 2 c 2 o
P1
c1 2 c 2 1
c0 1 c1 0
P2
c1 2 c 2 1
35
Cramer’s rule
I0 1 1
I 0 a bT0
AY
AY a bT0 1 0 I 0 a bT0 Y
*
A 1 (b g )
0 0 1
1 I0 1
AC bI 0 1 g a bT0
AC b a bT0 0 bI 0 1 g a bT0 C
*
A 1 (b g )
g 0 1
1 1 I0
AG g a bT0 I 0
AG b 1 a bT0 g a bT0 I 0 G
*
A 1 (b g )
g 0 0
36
I0 1 1
AY a bT0 1 0 I 0 a bT0
0 0 1
AY I 0 a bT0
Y
*
A 1 (b g )
1 I0 1
AC b a bT0 0 bI 0 1 g a bT0
g 0 1
AC bI 0 1 g a bT0
C
*
A 1 (b g )
1 1 I0
AG b 1 a bT0 g a bT0 I 0
g 0 0
AG g a bT0 I 0
G
*
A 1 (b g )
37
I0 1 1
AY a bT0 1 0 I 0 a bT0
0 0 1
1 I0 1
AC b a bT0 0 bI 0 1 g a bT0
g 0 1
1 1 I0
AG b 1 a bT0 g I 0 a bT0
g 0 0
38
Deriving Cramer’s Rule
n
d i Ci1
x1 d1 C11 d 2 C21 d n Cn1 x1 in1
x x d C
1 d1 C12 d 2 C22 d n Cn 2
2
1 i i 2
2
i 1
A
A
d C d C d C
xn
1 1n 2 2n n nn
xn n
d i Cin
i 1
39
5.4 Finding the Inverse
aka “the hard way”
Steps in computing the Inverse Matrix and
solving for x
1. Find the determinant |A| using expansion by
cofactors.
If |A| =0, the inverse does not exist.
2. Use cofactors from step 1 and complete the
cofactor matrix.
3. Transpose the cofactor matrix => adjA
4. Divide adj.A by |A| => A-1
5. Post multiply matrix A-1 by column vector of
constants d to solve for the vector of variables x
40
Derivation of matrix inverse formula
41
5.4 Finding the Inverse
aka “the hard way”
Steps in computing the Inverse Matrix and
solving for x
1. Find the determinant |A| using expansion by
cofactors.
If |A| =0, the inverse does not exist.
2. Use cofactors from step 1 and complete the
cofactor matrix.
3. Transpose the cofactor matrix => adjA
4. Divide adj.A by |A| => A-1
5. Post multiply matrix A-1 by column vector of
constants d to solve for the vector of variables x
42
5.4 A Inverse
n
A(adjA) = |A|I A a1 j C1 j
j 1
A(adjA)/|A| =I
( |A| is a scalar)
A-1A(adjA)/|A|=
A-1I 1
1
xA d adj A d
A
adj A/|A|= A-1
43
Finding the Determinant
Y = C+I0+G 1Y – 1C–1G = I0
C = a + b(Y-T0) -bY+1C+ 0G = a-bT0
G = gY -gY+0C+ 1G = 0
1 1 1
D b 1 0
g 0 1
1(1)(1) 1(0)(0) (1)(1)(b) (1)( g )(0) (1)(b)(0) (1)( g )(1)
1 b g
44
Derivation of matrix inverse formula
45
5.4 Finding the Inverse
aka “the hard way”
Steps in computing the Inverse Matrix and
solving for x
1. Find the determinant |A| using expansion by
cofactors.
If |A| =0, the inverse does not exist.
2. Use cofactors from step 1 and complete the
cofactor matrix.
3. Transpose the cofactor matrix => adjA
4. Divide adj.A by |A| => A-1
5. Post multiply matrix A-1 by column vector of
constants d to solve for the vector of variables x
46
5.4 A Inverse
n
A(adjA) = |A|I A a1 j C1 j
j 1
A(adjA)/|A| =I
( |A| is a scalar)
A-1A(adjA)/|A|=
A-1I 1
1
xA d adj A d
A
adj A/|A|= A-1
47
5.4 Inverse, an example
c1 P1 c 2 P2 co 2
C
1
c 2 c1
1 P1 2 P2 o
2 c2
c1 c 2 P1 co adjA
P 1 c1
1 2 2 o
c1 c2 P1 1 2 c 2 co
A c1 2 c 2 1 P c c c1 o
2 1
1 2 1 2 2 1
48
Finding the Determinant
Y = C+I0+G 1Y – 1C–1G = I0
C = a + b(Y-T0) -bY+1C+ 0G = a-bT0
G = gY -gY+0C+ 1G = 0
1 1 1
D b 1 0
g 0 1
1(1)(1) 1(0)(0) (1)(1)(b) (1)( g )(0) (1)(b)(0) (1)( g )(1)
1 b g
49
The macro model
Y=C+I +G 1Y - 1C – 1G = I0
0
C=a+b*(Y-T ) -bY + 1C + 0G = a-bT
0 0
G=g*Y -gY + 0C +1G = 0
1 1 1 Y I0
b 1 0 C a bT
0
=
g 0 1 G 0
50
Macro model
Section 3.5, Exercise 3.5-2 (a-d), p. 47
Section 5.6, Exercise 5.6-2 (a-b), p. 111
Given the following model
(a) Identify the endogenous variables
(b) Give the economic meaning of the parameter g
(c) Find the equilibrium national income (substitution)
(d) What restriction on the parameters is needed for a
solution to exist?
Find Y, C, G by (a) matrix inversion (b) Cramer’s rule
51
The macro model
Y=C+I +G 1Y - 1C – 1G = I0
0
C=a+b*(Y-T ) -bY + 1C + 0G = a-bT
0 0
G=g*Y -gY + 0C +1G = 0
1 1 1 Y I0
b 1 0 C a bT
0
=
g 0 1 G 0
52
1 1 1 Y 1 1 1 I0
A= b 1 0 C 1 b 1 g b a bT
1 b g 0
g 0 1 G g g 1 b 0
1 1 1
A b 1 0 1 b g
g 0 1 I 0 a bT0
Y
1 b g
1 b g
1 1 g g bI 0 1 g a bT0
C
1 b g
C=
1 b 1 b
g I 0 a bT0
1 1 1 G
C’= b 1 g b 1 b g
g g 1 b
53
3.4 Solution of General Eq. System
(1)(1)-(1)(1) =0 1 1 x 8
(inconsistent & 1 1 y 9
dependent)
2 1 x 12
(2)(2)-(1)(4) =0 4 2 y 24
(dependent)
(2)(1)-(1)(3) = -1
2 3 x 58
(independent as 1 1 y 20
rewritten)
54
5.7 Leontief Input-Output Models
Structure of an input-output model
The open model, A numerical example
Finding the inverse by approximation, The closed model
55
Miller and Blair 2-3, Table 2-3, p 15 Economic Flows ($ millions)
A x d x
ij i i i
A x d I x
ij i i i
d I x A x
i i ij i
I x A x d
i ij i i
I A x d
ij i i
x I A d
*
i ij
1
i
57
.15 .25 x1 d1 x1
.20
.05 x2 d 2 x2
.15 .25 x1 d1 1 0 x1
.20 x
.05 x2 d 2 0 1
2
d1 1 0 x1 .15 .25 x1
d 0 1 x .20 .05 x
2 2 2
1 0 x1 .15 .25 x1 d1
0 1 x .20 .05 x d
2 2 2
1 .15 .25 x1 d1
.20 x d
1 . 05 2 2
1
x1 .85 .25 d1
x .20 .95 d
2 2
58
5.8 Limitations of Static Analysis
Static analysis solves for the endogenous
variables for one equilibrium
Comparative statics show the shifts
between equilibriums
Dynamics analysis looks at the
attainability and stability of the
equilibrium
59
3.4 Solution of General Eq. System
(1)(1)-(1)(1) =0 1 1 x 8
(inconsistent & 1 1 y 9
dependent)
2 1 x 12
(2)(2)-(1)(4) =0 4 2 y 24
(dependent)
(2)(1)-(1)(3) = -1
2 3 x 58
(independent as 1 1 y 20
rewritten)
60
5.6 Application to Market and National-Income Models
Market model
National-income model
Matrix algebra vs. elimination of variables
61