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.

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.

Chile: building a computable general equilibrium model with an application to the Bío Bío region

Includes bibliography

Designing Efficient Subsidy Policies in a Regional Economy: A Multicriteria Decision-Making (MCDM)-Computable General Equilibrium (CGE) Approach

Since policy-makers usually pursue several conflicting objectives, policy-making can be understood as a multicriteria decision problem. Following the methodological proposal by André and Cardenete (2005) André, F. J. and Cardenete, M. A. 2005. Multicriteria Policy Making. Defining Efficient Policies in a General Equilibrium Model, Seville: Centro de Estudios Andaluces. Working Paper No. E2005/04, multi-objective programming is used in connection with a computable general equilibrium model to represent optimal policy-making and to obtain so-called efficient policies in an application to a regional economy (Andalusia, Spain). This approach is applied to the design of subsidy policies under two different scenarios. In the first scenario, it is assumed that the government is concerned just about two objectives: ensuring the profitability of a key strategic sector and increasing overall output. Finally, the scope of the exercise is enlarged by solving a problem with seven policy objectives, including both general and sectorial objectives. It is concluded that the observed policy could have been Pareto-improved in several directions.

Parameterization of applied general equilibrium models with flexible trade specifications based on the Armington, Krugman, and Melitz models

This paper explains how the Armington-Krugman-Melitz supermodel developed by Dixon and Rimmer can be parameterized, and demonstrates that only two kinds of additional information are required in order to extend a standard trade model to include Melitz-type monopolistic competition and heterogeneous firms. Further, it is shown how specifying too much additional information leads to violations of the model constraints, necessitating adjustment and reconciliation of the data. Once a Melitz-type model is parameterized, a Krugman-type model can also be parameterized using the calibrated values in the Melitz-type model without any additional data. Sample code for the General Algebraic Modeling System (GAMS) has also been prepared to promote the innovative supermodel in the AGE community.

Neutrality in the choice of number of firms or level of fixed costs in calibrating an Armington-Krugman-Melitz encompassing module for applied general equilibrium models

This paper shows how an Armington-Krugman-Melitz encompassing module based on Dixon and Rimmer (2012) can be calibrated, and clarifies the choice of initial levels for two kinds of number of firms, or parameter values for two kinds of fixed costs, that enter a Melitz-type specification can be set freely to any preferred value, just as the cases we derive quantities from given value data assuming some of the initial prices to be unity. In consequence, only one kind of additional information, which is on the shape parameter related to productivity, just is required in order to incorporate Melitz-type monopolistic competition and heterogeneous firms into a standard applied general equilibrium model. To be a Krugman-type, nothing is needed. This enables model builders in applied economics to fully enjoy the featured properties of the theoretical models invented by Krugman (1980) and Melitz (2003) in practical policy simulations at low cost.

Behavioral characteristics of applied general equilibrium models with an Armington-Krugman-Melitz encompassing module

This paper explore how simulation results change with different choice of trade specification, and the strength of preference for traded variety by economic agent differs, utilizing two types of three-region, three-sector AGE model that includes the Armington-Krugman-Melitz Encompassing module based on Dixon and Rimmer (2012). Simulation experiments reveal that: (1) the Melitz-type specification does not always enhance effectiveness of a certain policy change more than the one obtained with the Krugman-type, especially when economic agents' preference for traded variety is not so strong; (2) there are likely to be points where the volumes of effects obtained with the Melitz-type exceed the ones with the Krugman-type; and (3) the preference of the producers, those who are in the sectors that exhibit increasing returns to scale, for traded variety might be the engine of explosive effects as suggested by Fujita, et al. (2000).

Simulation analysis of the EU ELV/RoHS directives based on an applied general equilibrium model with Melitz-type trade specification

This paper explores the potential usefulness of an AGE model with the Melitz-type trade specification to assess economic effects of technical regulations, taking the case of the EU ELV/RoHS directives as an example. Simulation experiments reveal that: (1) raising the fixed exporting cost to make sales in the EU market brings results that exports of the targeted commodities (motor vehicles and parts for ELV and electronic equipment for RoHS) to the EU from outside regions/countries expand while the domestic trade in the EU shrinks when the importer's preference for variety (PfV) is not strong; (2) if the PfV is not strong, policy changes that may bring reduction in the number of firms enable survived producers with high productivity to expand production to be large-scale mass producers fully enjoying the fruit of economies of scale; and (3) When the strength of the importer's PfV is changed from zero to unity, there is the value that totally changes simulation results and their interpretations.

Labour Supply Curves for EU Member and Candidate States: An applied general equilibrium analysis. Factor Markets Working Paper No. 26, June 2012

This paper introduces a more sophisticated modelling of the labour market functioning of the European member and candidate states through the introduction of labour supply curves in an applied general equilibrium model. A labour supply curve offers a middle way in labour supply modelling, sitting between the two commonly adopted extremes of spare capacity and full employment. The first part of the paper outlines the theoretical foundation of the labour supply curve. Real world data is then used to derive labour supply curves for each member state, along with Croatia and Turkey. Finally, the impact of the newly specified labour markets on the results of an illustrative scenario involving reform of the common agricultural policy is explored. The results of computable general equilibrium analysis with the labour supply curve confirm the theoretical expectation that modelling the labour supply through an upwards-sloping curve produces results that lie between the extremes of spare capacity of the labour factor and fully employed labour. This specification captures a greater degree of heterogeneity in the labour markets of the member and candidate states, allowing for a more nuanced modelling of the effects of policy reform, including welfare effects.

Defining efficient policies in a general equilibrium model: a multi-objective approach

Macroeconomic policy makers are typically concerned with several indicators of economic performance. We thus propose to tackle the design of macroeconomic policy using Multicriteria Decision Making (MCDM) techniques. More specifically, we employ Multiobjective Programming (MP) to seek so-called efficient policies. The MP approach is combined with a computable general equilibrium (CGE) model. We chose use of a CGE model since they have the dual advantage of being consistent with standard economic theory while allowing one to measure the effect(s) of a specific policy with real data. Applying the proposed methodology to Spain (via the 1995 Social Accounting Matrix) we first quantified the trade-offs between two specific policy objectives: growth and inflation, when designing fiscal policy. We then constructed a frontier of efficient policies involving real growth and inflation. In doing so, we found that policy in 1995 Spain displayed some degree of inefficiency with respect to these two policy objectives. We then offer two sets of policy recommendations that, ostensibly, could have helped Spain at the time. The first deals with efficiency independent of the importance given to both growth and inflation by policy makers (we label this set: general policy recommendations). A second set depends on which policy objective is seen as more important by policy makers: increasing growth or controlling inflation (we label this one: objective-specific recommendations).

Factor Markets in General Computable Equilibrium Models. Factor Markets Working Document No. 47, May 2013

One objective of Computable general equilibrium (CGE) models is the analysis of economy-wide effects of policy measures. The focus of the Factor Markets project is to analyse the functioning of factor markets for agriculture in the EU-27, including the Candidate Countries. While agricultural and food markets are fully integrated in a European single market, subject to an EU-wide common policy, the Common Agricultural Policy (CAP), this is not the case for the agricultural factor markets capital, labour and land. There are partly serious differences with regard to member state regulations and institutions affecting land, labour and capital markets. The presentation of this heterogeneity of factor markets amongst EU Member States have been implemented in the CGE models to improve model-based analyses of the CAP and other policy measures affecting agricultural production. This final report comprises the outcome of a systematic extension and improvement of the Modular Applied GeNeral Equilibrium Tool (MAGNET) model starting from an overview of the current state of the art to represent factor markets in CGE models to a description of work on labour, land and capital in MAGNET.

Market Instruments and CO2 Mitigation: A General Equilibrium Analysis for Spain

25 p.