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    Computable General Equilibrium

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    CGE (computable general equilibrium) models use economic data to estimate how an economy may react to changes. They have evolved from input-output models and are used to analyze policy changes. A CGE model consists of equations describing economic relationships and a detailed database. It can show how a change in one area, like a new tax, affects other parts of the economy. CGE models are useful when direct evidence is limited, such as for developing economies.

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    Computable General Equilibrium

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    john.geek2014
    129 views4 pages
    CGE (computable general equilibrium) models use economic data to estimate how an economy may react to changes. They have evolved from input-output models and are used to analyze policy changes. A CGE model consists of equations describing economic relationships and a detailed database. It can show how a change in one area, like a new tax, affects other parts of the economy. CGE models are useful when direct evidence is limited, such as for developing economies.

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    LE GRAAL SELON SAINT BATACLAN

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    CGE (computable general equilibrium) models use economic data to estimate how an economy may react to changes. They have evolved from input-output models and are used to analyze policy changes. A CGE model consists of equations describing economic relationships and a detailed database. It can show how a change in one area, like a new tax, affects other parts of the economy. CGE models are useful when direct evidence is limited, such as for developing economies.

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    129 views4 pages

    Computable General Equilibrium

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    john.geek2014
    CGE (computable general equilibrium) models use economic data to estimate how an economy may react to changes. They have evolved from input-output models and are used to analyze policy changes. A CGE model consists of equations describing economic relationships and a detailed database. It can show how a change in one area, like a new tax, affects other parts of the economy. CGE models are useful when direct evidence is limited, such as for developing economies.

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    Computable general equilibrium

    Computable general equilibrium (CGE) models are a


    how easily inputs to production may be substituted
    class of economic models that use actual economic data
    for one another. Expenditure elasticities show how
    to estimate how an economy might react to changes in
    household demands respond to income changes.
    policy, technology or other external factors. CGE models
    are also referred to as AGE (applied general equilibrium) CGE models are descended from the input-output models
    models.
    pioneered by Wassily Leontief, but assign a more important role to prices. Thus, where Leontief assumed that,
    say, a xed amount of labour was required to produce
    a ton of iron, a CGE model would normally allow wage
    1 Overview
    levels to (negatively) aect labour demands.
    CGE models derive too from the models for planning the
    economies of poorer countries constructed (usually by a
    foreign expert) from 1960 onwards. Compared to the
    Leontief model, development planning models focused
    more on constraints or shortagesof skilled labour, capital, or foreign exchange.

    A CGE model consists of (a) equations describing model


    variables and (b) a database (usually very detailed) consistent with the model equations. The equations tend to
    be neo-classical in spirit, often assuming cost-minimizing
    behaviour by producers, average-cost pricing, and household demands based on optimizing behaviour. However,
    most CGE models conform only loosely to the theoretical general equilibrium paradigm. For example, they may
    allow for:

    CGE modelling of richer economies descends from Leif


    Johansens 1960[1] MSG model of Norway, and the static
    model developed by the Cambridge Growth Project in
    the UK. Both models were pragmatic in avour, and
    1. non-market clearing, especially for labour (unem- traced variables through time. The Australian MONASH
    ployment) or for commodities (inventories)
    model[2] is a modern representative of this class. Perhaps
    the rst CGE model similar to those of today was that of
    2. imperfect competition (e.g., monopoly pricing)
    Taylor and Black (1974). [3]
    3. demands not inuenced by price (e.g., government CGE models are useful whenever we wish to estimate
    demands)
    the eect of changes in one part of the economy upon
    the rest. For example, a tax on our might aect bread
    4. a range of taxes
    prices, the CPI, and hence perhaps wages and employment. They have been used widely to analyse trade policy.
    5. externalities, such as pollution
    More recently, CGE has been a popular way to estimate
    the economic eects of measures to reduce greenhouse
    A CGE model database consists of:
    gas emissions.
    CGE models always contain more variables than
    equationsso some variables must be set outside the
    model. These variables are termed exogenous; the remainder, determined by the model, are called endogenous. The choice of which variables are to be exogenous
    is called the model closure, and may give rise to controversy. For example, some modellers hold employment
    and the trade balance xed; others allow these to vary.
    Variables dening technology, consumer tastes, and gov2. elasticities: dimensionless parameters that capture ernment instruments (such as tax rates) are usually exogebehavioural response. For example, export demand nous.
    elasticities specify by how much export volumes
    might fall if export prices went up. Other elastici- Today there are many CGE models of dierent countries.
    ties may belong to the Constant Elasticity of Substi- One of[4]the most well-known CGE models is global: the
    tution class. Amongst these are Armington elastici- GTAP model of world trade.
    ties, which show whether products of dierent coun- CGE models are useful to model the economies of countries are close substitutes, and elasticities measuring tries for which time series data are scarce or not rel1. tables of transaction values, showing, for example,
    the value of coal used by the iron industry. Usually the database is presented as an input-output table or as a social accounting matrix. In either case, it
    covers the whole economy of a country (or even the
    whole world), and distinguishes a number of sectors,
    commodities, primary factors and perhaps types of
    household.

    6 FURTHER READING

    evant (perhaps because of disturbances such as regime


    changes). Here, strong, reasonable, assumptions embedded in the model must replace historical evidence.
    Thus developing economies are often analysed using
    CGE models, such as those based on the IFPRI template
    model.[5]

    MATLAB are also used. Use of such systems has lowered the cost of entry to CGE modelling; allowed model
    simulations to be independently replicated; and increased
    the transparency of the models.

    4 See also
    2

    Comparative-static and dynamic


    CGE models

    Many CGE models are comparative-static: they model


    the reactions of the economy at only one point in time.
    For policy analysis, results from such a model are often
    interpreted as showing the reaction of the economy in
    some future period to one or a few external shocks or policy changes. That is, the results show the dierence (usually reported in percent change form) between two alternative future states (with and without the policy shock).
    The process of adjustment to the new equilibrium is not
    explicitly represented in such a model, although details
    of the closure (for example, whether capital stocks are
    allowed to adjust) lead modellers to distinguish between
    short-run and long-run equilibria.
    By contrast, dynamic CGE models explicitly trace each
    variable through timeoften at annual intervals. These
    models are more realistic, but more challenging to construct and solvethey require for instance that future
    changes are predicted for all exogenous variables, not just
    those aected by a possible policy change. The dynamic
    elements may arise from partial adjustment processes or
    from stock/ow accumulation relations: between capital stocks and investment, and between foreign debt and
    trade decits. However there is a potential consistency
    problem because the variables that change from one equilibrium solution to the next are not necessarily consistent
    with each other during the period of change.
    Recursive-dynamic CGE models are those that can be
    solved sequentially (one period at a time). They assume
    that behaviour depends only on current and past states of
    the economy. Alternatively, if agents expectations depend on the future state of the economy, it becomes necessary to solve for all periods simultaneously, leading to
    full multi-period dynamic CGE models. Within the latter group dynamic stochastic general equilibrium models
    explicitly incorporate uncertainty about the future.

    Solution Techniques

    Early CGE models were often solved by a program


    custom-written for that particular model. Models were
    expensive to construct, and sometimes appeared as a
    'black box' to outsiders. Today most CGE models
    are formulated and solved using one of the GAMS or
    GEMPACK software systems. AMPL,[6] Excel and

    Dynamic stochastic general equilibrium


    General equilibrium
    Input-output model
    Macroeconomic model

    5 References
    [1] Johansen, Leif (1960). A Multi-Sectoral Study of Economic Growth, North-Holland (2nd enlarged edition
    1974).
    [2] Dixon, Peter and Maureen Rimmer (2002). Dynamic
    General Equilibrium Modelling for Forecasting and Policy: a Practical Guide and Documentation of MONASH,
    North Holland.
    [3] Taylor, L. and S.L. Black (1974), Practical General
    Equilibrium Estimation of Resources Pulls under Trade
    Liberalization, Journal of International Economics, Vol.
    4(1), April, pp. 37-58.
    [4] Hertel, Tom (ed.) (1997). Global Trade Analysis: Modeling and Applications, Cambridge University Press.
    [5] Lfgren, Hans, Rebecca Lee Harris and Sherman Robinson (2002). A standard Computable General Equilibrium
    (CGE) in GAMS, Microcomputers in Policy Research,
    vol.5, International Food Policy Research Institute.
    [6] The Simplest CGE. Retrieved 2011-05-23.

    6 Further reading
    Adelman, Irma and Sherman Robinson (1978). Income Distribution Policy in Developing Countries:
    A Case Study of Korea, Stanford University Press
    Bout, Antoine (2008). The Expected Benets of
    Trade Liberalization for World Income and Development: Opening the Black Box of Global Trade
    Modeling
    Cardenete, M. Alejandro, Guerra, Ana-Isabel and
    Sancho, Ferran (2012). Applied General Equilibrium: An Introduction. Springer.
    Dervis, Kemal, Jaime de Melo and Sherman Robinson (1982). General Equilibrium Models for Development Policy. Cambridge University Press.

    3
    Dixon, Peter, Brian Parmenter, John Sutton and
    Dave Vincent (1982). ORANI: A multisectoral
    model of the Australian Economy, North-Holland.
    Dixon, Peter, Brian Parmenter, Alan Powell and Peter Wilcoxen (1992). Notes and Problems in Applied General Equilibrium Economics, North Holland.
    Dixon, Peter (2006). Evidence-based Trade Policy Decision Making in Australia and the Development of Computable General Equilibrium Modelling, CoPS/IMPACT Working Paper Number G163
    Ginsburgh, Victor and Michiel Keyzer (1997). The
    Structure of Applied General Equilibrium Models,
    MIT Press.
    Kehoe, Patrick J. and Timothy J. Kehoe (1994) A
    Primer on Static Applied General Equilibrium Models, Federal Reserve Bank of Minneapolis Quarterly Review, 18(2) .
    Kehoe, Timothy J. and Edward C. Prescott (1995)
    Edited volume on Applied General Equilibrium,
    Economic Theory, 6.
    Mitra-Kahn, Benjamin H., 2008, "Debunking the
    Myths of Computable General Equilibrium Models", SCEPA Working Paper 01-2008
    Piermartini, Roberta and Robert Teh (2005). Demystifying Modelling Methods for Trade Policy,
    Discussion Paper No. 10, World Trade Organization, Geneva.
    Shoven, John and John Whalley (1984). Applied
    General-Equilibrium Models of Taxation and International Trade: An Introduction and Survey. Journal of Economic Literature, vol.22(3) 1007-51
    Shoven, John and John Whalley (1992). Applying
    General Equilibrium, Cambridge University Press.
    Thorbecke, Erik and collaborators (1992). Adjustment and Equity in Indonesia, OECD Development
    Centre, Paris.
    Dixon, Peter and Dale W. Jorgenson, ed. (2013).
    Handbook of Computable General Equilibrium
    Modeling, Vols. 1A and 1B, North Holland, ISBN
    978-0-444-59568-3.

    External links
    gEcon - software for DSGE and CGE modeling

    8 TEXT AND IMAGE SOURCES, CONTRIBUTORS, AND LICENSES

    Text and image sources, contributors, and licenses

    8.1

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