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RESEARCH SEMINAR
www.nopoor.eu
“THE USE OF COMPUTABLE GENERAL EQUILIBRIUM MODELS (CGE) FOR POVERTY
AND INCOME DISTRIBUTION ANALYSIS”
Madrid, October 21st – 23rd 2013
Directed by:Prof. de Arce & Prof. Mahía
Applied Economics Department, UAM
Web Page:http://www.uam.es/rafael.dearce/cge_seminar_october.htm
WIFI connection: User: nopoor2013 Password: 20!
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Software: GAMShttp://www.gams.com
Reception of Participants: Facultad CC.EE.EE. UAMMódulo 14.
Centro Predicción EconómicaSalón de
Grados “Emilio Fontela”
Classroom: Facultad CC.EE.EE.Mornings: Módulo 14.
Class: 105 (downstairs)Afternoons: Mód. 14.
Class: 201 (middle floor)
COMPUTABLE GENERAL EQUILIBRIUM MODELS
COMPUTABLE GENERAL EQUILIBRIUM
DATA (SAM)
MicroMacro
MATHS
NATIONAL ACCOUNTS
COMPUTABLE GENERAL EQUILIBRIUM MODELS
STATIC vs DYNAMIC – PARTIAL vs GENERAL EQUILIBRIUM
Static Dynamic
Partial Equilibrium
Markets performance (microecomics)
Microeconometric models
General Equilibrium
Interlinked Markets(Walras / Debreu)
CGE MODELS and Macro - econometrics
Economists of the Time: Partial Equilibrium and Static conceptIO models (Leontief): General Equilibrium and Static conceptMacroeconometric models (Tinbergen, Klein): GE and Dynamic
SOME HITS OF A NON EXHAUSTIVE HISTORY OF CGE MODELSQuesnay, 1758
Laussane Academy, (Switzerland): Léon Walras and Vilfredo Pareto
Leontief’s “Inter-relation of prices, output, savings and investment” (1937)
The Arrow- Debreu general equilibrium theory (1954)
The Cambridge Growth Project and Richard Stone (1960’S)
Norway CGE Model, Johansen, 1960
AGE Model and Scarf linnear solutions
Taylor & Black, 1974. Introducing external disequilibrium
Adelson and Robinson, 1976. “Chain of models as a dynamic approach”MONASH / ORANI Models for Australia and GEMPACK software
GTAP – IFPRI – World Bank
USING CGE MODELS (from Cockburn et Al. (2008))
the effects on:
• Macro variables, including measures of nation-wide or even global economic welfare; • industry variables; • regional variables; • labour market variables;• distributional variables; and • environmental variables
of changes in: • taxes, public consumption and social security payments; • tariffs and other interferences in international trade;• environmental policies; technology; • international commodity prices and interest rates; • wage setting arrangements and union behavior; and • known levels and exploitability of mineral deposits (the Dutch disease).
THE SIMPLEST MODEL
Source: Hosoe, 2004
SOCIAL ACCOUNT MATRIX (SAM) SCHEMA
SAM is read from column to row, so each entry in the matrix comes from its columnheading, going to the row heading: For example, Consumption (C) comes from households and is paid to firms..
Source: Mitra-Khan, 2008
EXTENDED CGE MODEL (Example in Hosoe, 2004)
Name Production Function σ (K,L) ε
Linnear ∞ 1
Cobb-Douglas 1 α+β
Leontief0
1 if
CESh /))1(( hLKAQ
MATHEMATICAL FUNCTIONS FOR COMBINING ELEMENTS (… for example, production factors)
… CES as a Generalized Exprexion ….
MATHEMATICAL FUNCTIONS FOR COMBINING ELEMENTS (… for example, production factors)
The elasticity of Substitution (sigma) represents the shape of the isoquants curvesLeontief
LinnearCobb-Douglas
COMPUTABLE GENERAL EQUILIBRIUM MODELS
DATA
• Social Account Matrix• Identifying the elements
PARAMETE
RS
• Declaring parameters• Calculations
VARIABLE
S
• Declaring variables• Defining equations
CALIBRATION
• Producing the initial General Equilibrium
SHOCK
• Introducing a shock in the system• Return to the equilibrium
Data Schema
Functional Schema
SimulationGame
SWOT DIAGRAM
STRENGTHS OPPORTUNITIES
Performing simulations in spite of limited data.Matching theory and data.
Disaggregating actors behaviour from specific surveys.Clarifying the political debate.
WEAKNESS THREATS
Non testing capabilities about elasticities estimates.Assumptions about functions and some elasticities
Exponential increase of linkages.Irregular calibration methods.
REFERENCES
Cockburn, J., Decaluwé, B. & Robichaud, V. (2008): “Trade Liberalization and Poverty: A CGE Analysis of the 1990s Experience in Africa and Asia”. Poverty and Economic Policy (PEP) Research Network, 2008.
Hosoe, N. (2004): “Computable General Equilibrium Modeling with GAMS”. National Graduate Institute for Policy Studies, Mimeo.
Mitra-Khan, B. (2008): Debunking the Myths of Computable General Equilibrium Models, SCEPA Working Paper 2008-1.