First, the assumption of a single sector-specific capital good is too restrictive. Reality is characterized by various products jointly employed in the production of a sectoral good, for instance as fixed and intermediate capital inputs.
Second, the formulation of the profit maximizing program of a given sector (j) does not rigorously reproduce the fact that in modern economies, firms borrow a monetary capital to buy the required input goods prior to starting a production cycle (the assumption of a "working capital" appears indeed natural for input goods). We should also, in consequence, express the capital cost of that sector (j) as "r.∑jp(i).K(i)" rather than "r(j).K(j)", so as to dissociate the borrowing interest rate (r) from prices of employed capital goods.
Third, the assumption of a continuous equilibrium of supply and demand is counterfactual for several reasons. At least, the real world involves the presence of perfect complements (consumption and factor goods). We know in that case that either the tâtonnement process can fail to equilibrate supply and demand, or that any given set of endowments may prevent full-employment of inputs regardless of price levels. Starting from sets that do not satisfy technical requirements means starting necessarily from disequilibrated markets, in which case input quantities should necessarily adjust through production cycles. In other words, short-run market-clearing and long-run dynamics should necessarily be conceived at once.
Finally, standard models assume sector specific goods that differ on the basis of their use (an intermediate good, a final good, a fixed capital good, an import or export good, etc.) As described by real national input-output account data, all goods can simultaneously be used as intermediate consumption or fixed capital depending on the sector, or even consumed as final goods, imported and/or exported.
We thus propose a judicious extension of the neoclassical MSG model that allows us to easily account for those important empirical aspects. It greatly simplifies working with disequilibrium dynamics, and gives a remarkably good representation of real economic dynamics through an example of calibration and estimation on French data gathered from the Organization for Economic Co-operation and Development (OECD). We can also measure underlying product prices, mark-ups, capital prices and returns, interest rate and monetary capital borrowed.