Confidence Regions for Calibrated Parameters in Computable General Equilibrium Models

We consider the problem of accessing the uncertainty of calibrated parameters in computable general equilibrium (CGE) models through the construction of confidence sets (or intervals) for these parameters. We study two different setups under which this can be done.

Macroemesures in Computable General Equilibrium Models: a Probabilistic Treatment with an Application to Morocco.

With the help of an illustrative general equilibrium (CGE) model of the Moroccan Economy, we test for the significance of simulation results in the case where the exact macromesure is not known with certainty. This is done by computing lower and upper bounds for the simulation resukts, given a priori probabilities attached to three possible closures (Classical, Johansen, Keynesian). Our Conclusion is that, when there is uncertainty on closures several endogenous changes lack significance, which, in turn, limit the use of the model for policy prescriptions.

Statistical Inference for Computable General Equilibrium Models with Application to a Model of the Moroccan Economy

We study the problem of measuring the uncertainty of CGE (or RBC)-type model simulations associated with parameter uncertainty. We describe two approaches for building confidence sets on model endogenous variables. The first one uses a standard Wald-type statistic. The second approach assumes that a confidence set (sampling or Bayesian) is available for the free parameters, from which confidence sets are derived by a projection technique. The latter has two advantages: first, confidence set validity is not affected by model nonlinearities; second, we can easily build simultaneous confidence intervals for an unlimited number of variables. We study conditions under which these confidence sets take the form of intervals and show they can be implemented using standard methods for solving CGE models. We present an application to a CGE model of the Moroccan economy to study the effects of policy-induced increases of transfers from Moroccan expatriates.

Methods to Estimate Dynamic Stochastic General Equilibrium Models

This paper employs the one-sector Real Business Cycle model as a testing ground for four different procedures to estimate Dynamic Stochastic General Equilibrium (DSGE) models. The procedures are: 1 ) Maximum Likelihood, with and without measurement errors and incorporating Bayesian priors, 2) Generalized Method of Moments, 3) Simulated Method of Moments, and 4) Indirect Inference. Monte Carlo analysis indicates that all procedures deliver reasonably good estimates under the null hypothesis. However, there are substantial differences in statistical and computational efficiency in the small samples currently available to estimate DSGE models. GMM and SMM appear to be more robust to misspecification than the alternative procedures. The implications of the stochastic singularity of DSGE models for each estimation method are fully discussed.

How Prescribed Policy Can Mislead when Data Are Defective: a Follow-Up to Srinivasan (1994) Using General Equilibrium.

We highlight an example of considerable bias in officially published input-output data (factor-income shares) by an LDC (Turkey), which many researchers use without question. We make use of an intertemporal general equilibrium model of trade and production to evaluate the dynamic gains for Turkey from currently debated trade policy options and compare the predictions using conservatively adjusted, rather than official, data on factor shares.

Rigidité normale, dévaluation et équilibre général intertemporel

La présente étude analyse les effets dynamiques de la dévaluation du franc CFA, à l’aide d’un modèle monétaire d’équilibre général, intertemporel et multisectoriel. L’accent est particulièrement mis sur les interactions entre dévaluation et accumulation du capital. Dans le modèle, les effets du changement de parité passent par le marché du travail qui se caractérise par l’inertie du salaire nominal. Les résultats montrent que la dévaluation relance l’investissement, avec des effets expansionnistes sur l’activité économique. Le choc monétaire n’a eu qu’un impact limité sur les soldes budgétaire et commercial. Une mesure d’accompagnement telle que la réduction des salaires de la fonction publique améliore ces deux soldes mais déclenche un processus récessif.

On the Optimal Order of Natural Resource Use When the Capacity of the Inexhaustible Substitute is Limited.

Consider a general equilibrium framework where the marginal cost of extraction from several deposits of an exhaustible resource is constant in terms of an inexhaustible perfect substitute and differs between deposits. the instantaneous rate of production form the inexhaustible resource is subject to a capacity constraint.

Habit Formation and the Persistence of Monetary Shocks

This paper studies the persistent effects of monetary shocks on output. Previous empirical literature documents this persistence, but standard general equilibrium models with sticky prices fail to generate output responses beyond the duration of nominal contracts. This paper constructs and estimates a general equilibrium model with price rigidities, habit formation, and costly capital adjustment. The model is estimated via Maximum Likelihood using US data on output, the real money stock, and the nominal interest rate. Econometric results suggest that habit formation and adjustment costs to capital play an important role in explaining the output effects of monetary policy. In particular, impulse response analysis indicates that the model generates persistent, hump-shaped output responses to monetary shocks.

Industrial Adjustment: Context, Causes, Impacts and Methods for Analysis

Adjustement is an ongoing process by which factors of reallocated to equalize their returns in different uses. Adjustment occurs though market mechanisms or intrafirm reallocation of resources as a result of changes in terms of trade, government policies, resource availability, technological change, etc. These changes alter production opportunities and production, transaction and information costs, and consequently modify production functions, organizational design, etc. In this paper we define adjustment (section 2); review empirical estimates of the extent of adjustment in Canada and abroad (section 3); review selected features of the trade policy and adjustment context of relevance for policy formulation among which: slow growth, a shift to services, a shift to the Pacific Rim, the internationalization of production, investment distribution communications the growing use of NTB's, changes in foreign direct investment patterns, intrafirm and intraindustry trade, interregional trade flows, differences in micro economic adjustment processes of adjustment as between subsidiaries and Canadian companies (section 4); examine methodologies and results of studies of the impact of trade liberalization on jobs (section 5); and review the R. Harris general equilibrium model (section 6). Our conclusion emphasizes the importance of harmonizing commercial and domestic policies dealing with adjustment (section 7). We close with a bibliography of relevant publications.

Macroclosures in Open Economy Cge Models: a Numerical Reappraisal

It Has Been Argued That in the Construction and Simulation Process of Computable General Equilibrium (Cge) Models, the Choice of the Proper Macroclosure Remains a Fundamental Problem. in This Study, with a Standard Cge Model, We Simulate Disturbances Stemming From the Supply Or Demand Side of the Economy, Under Alternative Macroclosures. According to Our Results, the Choice of a Particular Closure Rule, for a Given Disturbance, May Have Different Quantitative and Qualitative Impacts. This Seems to Confirm the Imiportance of Simulating Cge Models Under Alternative Closure Rules and Eventually Choosing the Closure Which Best Applies to the Economy Under Study.