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Introduction to Computable General Equilibrium Models

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Computable general equilibrium (CGE) models are a type of economic model that can be used to simulate the effects of economic policies and other changes in the economy. CGE models are typically used to study issues such as the impact of trade policies, tax policies, and environmental policies.

Introduction to Computable General Equilibrium Models

by Mary E. Burfisher

5 out of 5

Language	:	English
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CGE models are based on the concept of general equilibrium, which means that they take into account the interactions between all of the different sectors of the economy. This allows CGE models to simulate the effects of changes in one sector of the economy on other sectors of the economy.

CGE models are typically used to study long-term effects of economic policies. This is because CGE models take into account the effects of changes in the economy on investment, savings, and other long-term factors.

CGE models can be a valuable tool for policymakers. They can be used to simulate the effects of different policies before they are implemented, which can help policymakers to make better decisions.

How CGE Models Work

CGE models are typically built using a system of equations that represent the different sectors of the economy. These equations are then solved simultaneously to find the equilibrium values of the different variables in the model.

The variables in a CGE model typically include the following:

Output
Input
Prices
Wages
Consumption
Investment
Savings

The equations in a CGE model typically represent the following relationships:

The production function, which shows how output is produced from inputs
The demand function, which shows how demand for goods and services is related to prices
The supply function, which shows how supply of goods and services is related to prices
The market clearing condition, which shows that the quantity of goods and services demanded must equal the quantity of goods and services supplied

The equilibrium values of the variables in a CGE model are the values that satisfy all of the equations in the model.

Uses of CGE Models

CGE models can be used to study a wide range of economic issues. Some of the most common uses of CGE models include:

The impact of trade policies
The impact of tax policies
The impact of environmental policies
The impact of technological change
The impact of climate change

CGE models can be a valuable tool for policymakers. They can be used to simulate the effects of different policies before they are implemented, which can help policymakers to make better decisions.

Limitations of CGE Models

CGE models are a powerful tool, but they also have some limitations. Some of the most common limitations of CGE models include:

CGE models are often complex and difficult to use.
CGE models can be data-intensive.
CGE models can be sensitive to the assumptions that are made about the economy.

Despite their limitations, CGE models can be a valuable tool for policymakers. They can be used to simulate the effects of different policies before they are implemented, which can help policymakers to make better decisions.

CGE models are a type of economic model that can be used to simulate the effects of economic policies and other changes in the economy. CGE models are typically used to study issues such as the impact of trade policies, tax policies, and environmental policies.

CGE models can be a valuable tool for policymakers. They can be used to simulate the effects of different policies before they are implemented, which can help policymakers to make better decisions.

Introduction to Computable General Equilibrium Models

by Mary E. Burfisher

5 out of 5