computable general equilibrium models- part 1
Post on 16-Nov-2021
7 Views
Preview:
TRANSCRIPT
F R E I G H T T R A N S P O R T M O D E L I N G
( C I V L 7 9 0 9 - 8 9 0 9 )
D E P A R T M E N T O F C I V I L E N G I N E E R I N G
U N I V E R S I T Y
U N I V E R S I T Y O F M E M P H I S
1
Computable General Equilibrium
Models- Part 1
09/05/2014
Material2
Materials used in today’s lecture are from
Burfisher M.E., Introduction to Computable General Equilibrium Models, Cambridge University Press, 2011
Hosoe N.M. Gasawa K., Hashimoto H., Textbook of Computable General Equilibrium Modeling, Palgrave
Macmillan, 2010
Topics3
What is CGE Models and Modeling
Elements of CGE Models
What is CGE4
System of equations Describe an economy
Interactions among parts of the economy
Equations: Derived from macro and micro economic theory
Like any other model Exogenous (a.k.a. parameter) and endogenous (a.k.a. decision
variables controlled by the model) variables
Market constraints
Equilibrium formulas or optimization programs
Computable-G-E5
Computable: Capability to quantify effects of a shock on an economy
Example: What is the outcome of reducing U.S. tariff for imports
Qualitative: Increase of import demand, decrease of domestic demand
Quantitative (computable): Use data to actually measure the effects not only on demand for import products but also on the whole economy (i.e. sectors that produce same goods as imports, sectors that provide them with material etc)
C-General-E6
General: Encompasses all economic activity and linkages
Production
Consumption
Employment
Taxes
Savings
Trade
Fuel Price Change
Price of Goods
Increase
Demand Decrease
Change in employment, taxes, savings
Change in trade flow,
exchange rate
Effects world economy
C-G-Equilibrium7
Producers: Maximize efficiency
Given input costs (fuels, sale price, technological constraints) find output products that maximize efficiency (some objective function)
Note: No profit is allowed (savings and investment is)
Consumers: Maximize utility
Given input costs and salary find bundle of goods that maximizes utility
CGE Component Interrelationships8
1. Firms produce products to meet demand
1. Purchase material
2. Purchase factors (labor, capital) & pay wages and rent
2. Household income from firms is spent on
1. Goods and services
2. Taxes
3. Savings and Investments
3. Tax revenue for the government
1. Purchase factors & invest
4. Investors use savings to buy capital
Circular flow diagram of the economy
Source: http://www.ifpri.org/sites/default/files/publications/sp5.pdf
9
Toy Partial Equilibrium Model10
Cost to build a bike: C
Price to sell a bike: P
Income of people buying a bike: Y
Quantity of bikes produced: Q=F(C, P)
Demand for bikes: D=G(Y, P)
Equilibrium condition: D=Q
CGE Database-111
Social Accounting Matrix (SAM)- see gtap.org
Describes flow of income and spending during a specific time period
Reports on
Values of good and services produced
Income generated from sales
Household income and spending
Government tax and revenue
Savings and investment spending
International trade
CGE Database-212
Aggregate data Industries are grouped
Agriculture Manufacturing Services
Household transactions Household type Income Location Demographics
Goods and services Food Manufacturing Services
More on SAM later on
Model Application13
Beginning
Tax policies (developed countries)
Development policies (developing countries)
Since 1990
Trade among regions
Climate change and evaluation of mitigation strategies
Consumer aversion to genetically modified goods
……………………….
Elements of CGE-114
CGE Models is a set of equations and optimization models
Variables (exogenous, endogenous and model closure)
Exogenous: fixed values (inputs to the model)
Example: Labor supply assumed constant
Endogenous: determined as solutions
Example: Price and quantity of goods
Closure: Decision on exogenous and endogenous
Elements of CGE-215
Exogenous parameters
Tax and tariff rates (typically calculated by the CGE model from the base data)
Example: tariff rate= value of tariff revenue/value of imports
Elasticities of demand and supply
Supply Elasticities:
Factor substitution (e.g. labor vs capital-equipment or technology)
Factor mobility (e.g. worker moves to another region due to higher salaries)
Export transformation (e.g. ability to transform products between products for domestic vs. export demand)
Elements of CGE-316
Elasticities of demand and supply
Demand Elasticities:
Income elasticity of demand: change in demand from change in income
Own and cross-price elasticity: consumer demand change due to price change
• Own: the same product
• Cross: between products
Complement (negative), independent (zero), substitute (positive elasticity)
• Import substitution: shift between imported and domestic products
• Export demand: change of export demand to the rest of the world
Elements of CGE-417
Shift and share parameters
Parameters used in the supply and demand functions of CGE models
Example: Cobb-Douglas function
A: Shift parameter-productivity of K (capital) and L (labor)
a: Share parameter: share of K and L in productivity Hint: a is an elasticity
)( 1 aaLKAOutput
Elements of CGE-518
Model Calibration: Calculate shift and share parameters to match initial equilibrium
Equations
Behavioral: Economic behavior of producers, consumers and other agents (e.g. supply and demand equations, utility functions of customers for different goods)
Identity: Define a variable as a function of other variables (think of it as auxiliary variable definitions)
Example: Market clearing identity equation from GTAP
jfjff qfeSHRq ,,
f: mobility factor, qf: change in national supply, SHR: industry j share in national
employment of factor f (a.k.a. weight), qfe: % change in demand for factor f in industry j
Elements of CGE-619
Macroclosure (its an equation)
Decision about which of the two macroeconomic variables (savings or investment) to adjust to maintain equilibrium
Example: GTAP uses savings rate as exogenous and investment as endogenous
Total Savings=Total Investment
Elements of CGE-720
How will a macroclosure decision effect results
Example 1: Savings exogenous Increase in income will result in increased savings
Increased savings will increase investment
Most likely increase in production of machinery and equipment
Example 2: Investment exogenous Increase in income results in no change of savings
Increase is spending
Most likely lead to an increase in demand of consumer goods (apparel, groceries, electronics) import and/or domestic
Elements of CGE-821
CGE databases do not provide quantity flows (only $$$$$$)
Reduces information needed to build CGE model
We do need to report both quantities and values
Solution: Normalizing prices (quantity per 1 unit of currency)
Convert initial (or base) prices into $1 (or one unit of the currency used say drachma)
Base values of shoes 50% increase in shoes quantity
Price Quantity Value Price Quantity Value
Actual Data 0.5 6 3 0.5 9 4.5
Norm. Price Q/price Value Norm. Price Q/price Value
Normalized Data
1 3 3 1 4.5 4.5
Elements of CGE-922
CGE models report several prices of a product along the supply chain
How do we keep track of the change in price along the supply chain
Price linkages Producer price
Consumer price
Bilateral import price (exporter price + trade margins)
Bilateral export price (exporter domestic product price + export tax)
Elements of CGE-1023
Structure of CGE model
Step 1: Define sets, parameters, variables and equations
Assign values to elasticity parameters and initial values to variables from the database
Calculate tax rates, calibrate shift/share parameters
Solve model
If results match base case end else calibrate
Next time24
Social Accounting Matrix
A simple CGE model Households
Firms
Market
No time-related elements (investment and savings)
Close economy (no international trade)
What is a Spatial Computable General Equilibrium model
F R E I G H T T R A N S P O R T M O D E L I N G
( C I V L 7 9 0 9 - 8 9 0 9 )
D E P A R T M E N T O F C I V I L E N G I N E E R I N G
U N I V E R S I T Y
U N I V E R S I T Y O F M E M P H I S
25
Computable General Equilibrium
Models
09/05/2014
26
top related