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.