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:
Password:
Software:
GAMS
http://www.gams.com
Reception of Participants:
Classroom:
nopoor2013
20!3%NpRu4M
Facultad CC.EE.EE. UAM
Módulo 14. Centro Predicción Económica
Salón de Grados “Emilio Fontela”
Facultad CC.EE.EE.
Mornings: Módulo 14. Class: 105 (downstairs)
Afternoons: Mód. 14. Class: 201 (middle floor)
COMPUTABLE GENERAL EQUILIBRIUM MODELS
Macro
Micro
MATHS
DATA
(SAM)
COMPUTABLE GENERAL
EQUILIBRIUM
NATIONAL ACCOUNTS
COMPUTABLE GENERAL EQUILIBRIUM MODELS
STATIC vs DYNAMIC – PARTIAL vs GENERAL EQUILIBRIUM
Partial
Equilibrium
General
Equilibrium
Static
Dynamic
Markets
performance
(microecomics)
Interlinked
Markets
(Walras / Debreu)
Microeconometric
models
CGE MODELS and
Macro econometrics
Economists of the Time: Partial Equilibrium and Static concept
IO models (Leontief): General Equilibrium and Static concept
Macroeconometric models (Tinbergen, Klein): GE and Dynamic
SOME HITS OF A NON EXHAUSTIVE HISTORY OF CGE MODELS
Quesnay, 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
Source: Mitra-Khan, 2008
SAM is read from column to row,
so each entry in the matrix comes
from its column
heading, going to the row
heading: For example,
Consumption (C) comes from
households and is paid to firms..
EXTENDED CGE MODEL (Example in Hosoe, 2004)
MATHEMATICAL FUNCTIONS FOR COMBINING ELEMENTS
(… for example, production factors)
Name
Production Function
Linnear
Q = aK + bL
Cobb-Douglas
Q = AK a Lb
Leontief
ìK Lü
Q = min í ; ý / k > aQ; L > bQ
î a bþ
CES
Q  A ( K

 (1   ) L

)
h /
σ (K,L)
ε
∞
1
1
α+β
1 if
0
1
1+ r
K L
=
a b
h
… CES as a Generalized Exprexion ….
MATHEMATICAL FUNCTIONS FOR COMBINING ELEMENTS
(… for example, production factors)
Linnear
Cobb-Douglas
Leontief
The elasticity of Substitution
(sigma) represents the shape of
the isoquants curves
COMPUTABLE GENERAL EQUILIBRIUM MODELS
DATA
PARAMETERS
VARIABLES
CALIBRATION
SHOCK
• Social Account Matrix
• Identifying the elements
• Declaring parameters
• Calculations
• Declaring variables
• Defining equations
Data
Schema
Functional
Schema
• Producing the initial General Equilibrium
• Introducing a shock in the system
• Return to the equilibrium
Simulation
Game
SWOT DIAGRAM
STRENGTHS
Performing simulations in spite of
limited data.
Matching theory and data.
WEAKNESS
Non testing capabilities about
elasticities estimates.
Assumptions about functions and
some elasticities
OPPORTUNITIES
Disaggregating actors behaviour from
specific surveys.
Clarifying the political debate.
THREATS
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.