Book contents
- Frontmatter
- Contents
- Text Boxes
- About This Book
- Acknowledgments
- 1 Introduction to Computable General Equilibrium Models
- 2 Elements of a Computable General Equilibrium Model
- 3 The CGE Model Database: A Social Accounting Matrix
- 4 Final Demand in a CGE Model
- 5 Supply in a CGE Model
- 6 Factors of Production in a CGE Model
- 7 Trade in a CGE Model
- 8 Taxes in a CGE Model
- 9 Conclusion: Frontiers in CGE Modeling
- Model Exercises
- Appendix
- Glossary
- Practice and Review Answer Key
- Model Exercise Answer Key
- References
- Author Index
- Subject Index
2 - Elements of a Computable General Equilibrium Model
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- Text Boxes
- About This Book
- Acknowledgments
- 1 Introduction to Computable General Equilibrium Models
- 2 Elements of a Computable General Equilibrium Model
- 3 The CGE Model Database: A Social Accounting Matrix
- 4 Final Demand in a CGE Model
- 5 Supply in a CGE Model
- 6 Factors of Production in a CGE Model
- 7 Trade in a CGE Model
- 8 Taxes in a CGE Model
- 9 Conclusion: Frontiers in CGE Modeling
- Model Exercises
- Appendix
- Glossary
- Practice and Review Answer Key
- Model Exercise Answer Key
- References
- Author Index
- Subject Index
Summary
In this chapter, we deconstruct the computable general equilibrium model and describe its core elements. These include sets, endogenous and exogenous variables, exogenous parameters, behavioral and identity equations, and model closure. We describe prices, price normalization and the numeraire. We explain how the CGE model runs, including the processes of calibrating and solving the model, and carrying out an experiment.
A computable general equilibrium (CGE) model is a system of mathematical equations that describes an economy as a whole, and the interactions among its parts. A model this comprehensive is more complex than the bicycle industry model that we built in Chapter 1, but it need not be a “black box.” In this chapter, we deconstruct the CGE model and describe its core elements. We show that a CGE model and the simple bicycle model share many features, such as exogenous and endogenous variables, market-clearing constraints, and identity and behavioral equations. We describe how the price of a single commodity changes as the product moves along the supply chain from producers to consumers. We explain the practice of normalizing prices and the role of the price numeraire. We introduce model closure, which is the decision about which variables are exogenous and which are endogenous. We also describe how the CGE model runs by explaining the sequence of model calibration, model solution, and model experiment.
In this chapter, our objective is to introduce, at a general level, the model's elements and mechanics.
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- Information
- Introduction to Computable General Equilibrium Models , pp. 16 - 43Publisher: Cambridge University PressPrint publication year: 2011