Book contents
- Frontmatter
- Dedication
- Contents
- List of Text Boxes
- Acknowledgments
- About This Book
- 1 Introduction to Computable General Equilibrium Models
- 2 Elements of a Computable General Equilibrium Model
- 3 The CGE Model Database
- 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 Regulations in a CGE Model
- 10 Conclusion: Frontiers in CGE Modeling
- Model Exercises
- Appendix A Social Accounting Matrix for the United States, 2007 $U.S. Billions
- Appendix B Price and Quantity Variables and Definitions in a Standard CGE Model
- Glossary
- Practice and Review Answer Key 385
- Model Exercise Answer Key 391
- References
- Author Index
- Subject Index
5 - Supply in a CGE Model
Published online by Cambridge University Press: 02 February 2017
- Frontmatter
- Dedication
- Contents
- List of Text Boxes
- Acknowledgments
- About This Book
- 1 Introduction to Computable General Equilibrium Models
- 2 Elements of a Computable General Equilibrium Model
- 3 The CGE Model Database
- 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 Regulations in a CGE Model
- 10 Conclusion: Frontiers in CGE Modeling
- Model Exercises
- Appendix A Social Accounting Matrix for the United States, 2007 $U.S. Billions
- Appendix B Price and Quantity Variables and Definitions in a Standard CGE Model
- Glossary
- Practice and Review Answer Key 385
- Model Exercise Answer Key 391
- References
- Author Index
- Subject Index
Summary
In this chapter, we examine the supply side of an economy as represented in computable general equilibrium (CGE) models. The production data in the social accounting matrix (SAM) depict the production process, in which firms combine intermediate inputs with factors of production to produce goods and services. We use these data to calculate input-output coefficients, which describe the input intensity of production processes. CGE models break down the production technology into parts, depicting how subprocesses are nested within the overall production process. Within each nest, behavioral equations describe producers’ efficiency-maximizing input demands and output levels, subject to their production technology. Export transformation functions, used in some CGE models, describe the allocation of production between domestic and export markets.
In 2009, the U.S. government offered financial assistance to its auto manu-facturers to help them survive a deep recession and a free fall in consumer demand for cars. The bailout was controversial in part because the government seemed to be choosing to support a particular manufacturing industry. The government response was that the aid package not only helped save the jobs of autoworkers but also preserved jobs in the many industries that supply parts to the automakers and that sell and service autos. This part of the U.S. economic stimulus program built on the idea that an injection of support into one part of the economy would move in a circular flow to the rest of the economy, starting with the strong inter-industry linkages between automakers and the other manufacturing and service sectors that supply its inputs.
In this chapter and the next, we explore the supply side of the economy as represented in a CGE model, emphasizing the linkages among industries through their demands for intermediate inputs and their competition for the factors of production. We start with an examination of the production data in the SAM. The activity column accounts of the SAM describe the inputs used in industries’ production processes. An activity's column is therefore much like a recipe because its lists all of the ingredients and the proportions used in making its product. Activity row accounts describe the use of industries’ outputs as inputs for other industries.
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- Introduction to Computable General Equilibrium Models , pp. 123 - 148Publisher: Cambridge University PressPrint publication year: 2017