This volume brings together twelve papers by many of the most prominent applied general equilibrium modelers honoring Herbert Scarf. The contributors discuss some traditional as well as more contemporary topics in the field, including non-convexities in economy-wide models, tax policy, developmental modeling and energy modeling. The book also covers a range of new approaches, conceptual issues and computational algorithms. An introductory chapter written by the editors maps out issues and scenarios for the future evolution of applied general equilibrium.
Author(s): Timothy J. Kehoe, T. N. Srinivasan, John Whalley
Edition: illustrated edition
Publisher: Cambridge University Press
Year: 2005
Language: English
Pages: 450
Cover......Page 1
Half-Title......Page 3
Title......Page 5
Copyright......Page 6
Contents......Page 7
Contributors......Page 9
Acknowledgments......Page 13
Introduction......Page 15
ORIGINS OF APPLIED GENERAL EQUILIBRIUM MODELING......Page 16
CONTRIBUTIONS IN THIS VOLUME......Page 19
KEY ISSUES IN APPLIED GENERAL EQUILIBRIUM MODELING......Page 23
ON TO NUMERICAL SIMULATION......Page 24
REFERENCES......Page 25
1 Personal Reflections on Applied General Equilibrium Models......Page 27
1.1.2. “General”......Page 28
1.1.4. “Competitive”......Page 29
1.2.1. Tinbergen......Page 30
1.2.3. Consistency of Viewpoint......Page 31
1.3. THE EXTENSION INTO TIME AND UNCERTAINTY......Page 32
1.3.3. The Curse of Dimensionality......Page 33
1.4.2. Time Series and National Income Accounting......Page 34
1.5.3. Convenient Function Forms......Page 35
REFERENCES......Page 36
2 Uniqueness of Equilibrium in the Multicountry Ricardo Model......Page 38
2.1. UNIQUENESS IN THE MODEL OF EXCHANGE......Page 39
2.1.1. General Equilibrium with Production......Page 40
2.1.2. Uniqueness in the Ricardo Model......Page 41
2.2.1. Exchange Economies with Two Goods......Page 43
2.2.2. The Index for a Model of Exchange with n Goods......Page 46
2.2.4. Index Theory with Production......Page 47
2.2.5. Index Theory and the Ricardo Model......Page 48
REFERENCES......Page 58
3 Solving Dynamic Stochastic Competitive General Equilibrium Models......Page 59
3.1. A DYNAMIC GENERAL EQUILIBRIUM MODEL AND STANDARD SOLUTION METHODS......Page 62
3.2. RELIABLE AND EFFICIENT COMPUTATION OF GENERAL EQUILIBRIUM......Page 66
3.3. A NEGISHI APPROACH TO STOCHASTIC, DYNAMIC GENERAL EQUILIBRIUM......Page 68
3.4. DYNAMIC PROGRAMMING: CONVENTIONAL METHODS AND THEIR LIMITATIONS......Page 71
3.5.1. Schumaker’s Shape-Preserving Splines......Page 74
3.5.2. Performance in a Simple Example......Page 75
3.5.3. Alternative Shape-Preserving Approximation Methods......Page 77
REFERENCES......Page 78
4.1. INTRODUCTION......Page 81
4.2. FORMULATIONS OF THE MODEL......Page 83
4.3.2. The Convert Tool......Page 90
4.3.3. Options and Parametric Solution......Page 91
4.3.4. Nonlinear Optimization Codes......Page 93
4.4.1. Feasibility Problems......Page 94
4.4.2. Small Optimization Problems......Page 95
4.4.3. Feasibility Tests......Page 97
4.4.4. Larger Optimization Problems......Page 98
4.5. CONCLUSIONS......Page 100
APPENDIX A: EXAMPLE OF GAMS MPEC SYNTAX......Page 101
APPENDIX B: MODEL STATISTICS FOR TEST PROBLEMS......Page 103
REFERENCES......Page 105
INTRODUCTION......Page 109
5.1. BUSINESS CYCLES......Page 114
5.2. CONVEX ECONOMIES......Page 115
5.3. THE AGGREGATE PRODUCTION FUNCTION......Page 117
5.4. LABOR INDIVISIBILITY......Page 119
5.5. WHY A FIXED WORKWEEK LENGTH?......Page 120
5.6. CAPACITY CONSTRAINTS AND NONLINEARITIES......Page 125
5.6.2. Preferences......Page 127
5.6.3. Computing Equilibrium Allocations......Page 128
5.6.5. Solution Method......Page 129
5.7. CONCLUDING COMMENTS......Page 130
REFERENCES......Page 131
6.1. INTRODUCTION......Page 133
6.2. LAYOFF TAXES IN AN EMPLOYMENT LOTTERIES MODEL......Page 135
6.3. LAYOFF TAXES IN AN ISLAND MODEL......Page 138
6.4. CONCLUDING REMARKS......Page 139
REFERENCES......Page 140
7.1. INTRODUCTION......Page 141
7.2.1. The Timing......Page 143
7.2.2. The Default Option and Market Arrangement......Page 144
7.2.3. Households......Page 146
7.2.4. Unsecured Credit Industry and Equilibrium......Page 149
7.3. CALIBRATION......Page 150
7.3.2.1. The Targets from the Data......Page 151
7.3.2.2. The Targets in the Model......Page 153
7.4. MODEL ECONOMIES WITH AGGREGATE SHOCKS......Page 154
7.5.1. Business Cycle Statistics......Page 156
7.5.2. Discussion of the Bankruptcy-Related Statistics......Page 158
7.6. THE BUSINESS-CYCLE BEHAVIOR OF THE OTHER MODEL ECONOMIES......Page 159
7.6.2. The Business-Cycle Behavior of Economies with Asset-Destruction Shock......Page 162
7.7. CONCLUDING REMARKS......Page 163
REFERENCES......Page 164
8.1. INTRODUCTION......Page 165
8.2.1. Default and Penalties with a Continuum of States......Page 167
8.2.2. Bankruptcy......Page 169
8.2.3. Collateral and CMO Markets......Page 174
8.2.3.2. Equilibria......Page 175
8.2.3.3. Extensions: Arbitrage and Equilibrium without Minimum Margin Requirements......Page 177
8.3.1. A General Model with Short-Lived Assets: Collateral Avoids Ponzi Schemes......Page 178
8.3.2. Extensions: Markov Equilibria and Computational Algorithms, Bubbles, and International Bankrupty......Page 181
REFERENCES......Page 182
9.1. INTRODUCTION......Page 187
9.2. INCOME TAX REFORM......Page 190
9.3. CONSUMPTION TAX PROPOSALS......Page 203
9.3.1. Tax Reform Proposals......Page 205
9.3.2. Modeling the Tax Reform Proposals......Page 207
9.3.3. Welfare Impacts of Fundamental Tax Reform......Page 215
9.4. CONCLUSIONS......Page 220
A.1. Consumer Behavior......Page 221
A.2. Producer Behavior......Page 225
A.3. Nontax Parameters......Page 227
REFERENCES......Page 230
10.1. INTRODUCTION......Page 233
10.2.1. The Household Income Generation Model......Page 237
10.2.2. Estimation of the Model for the Benchmark Simulation......Page 240
10.2.3. Link with the CGE Model......Page 241
10.2.4. Interpretation of the Consistency System of Equations......Page 245
10.2.5. Interpreting the Intercepts of Occupational Choice Criteria......Page 246
10.3. THE CGE MODEL......Page 248
10.3.1. Factors of Production......Page 249
10.3.3. Macro Closure Rules......Page 250
10.4. SCENARIOS AND SIMULATION RESULTS......Page 251
10.5. MICROSIMULATION VERSUS REPRESENTATIVE HOUSEHOLD GROUPS (RHG)......Page 258
10.6. CONCLUSION......Page 263
APPENDIX A: STRUCTURE OF THE SOCIAL ACCOUNTING MATRIX......Page 264
REFERENCES......Page 267
11.1. INTRODUCTION......Page 269
11.3. A MULTIMODEL EVALUATION BY THE ENERGY MODELING FORUM......Page 270
11.4. STRUCTURE OF MERGE......Page 275
11.5. DISCOUNTING IN MERGE......Page 281
11.6. EQUITY AND EFFICIENCY......Page 283
REFERENCES......Page 289
12.1. INTRODUCTION......Page 291
12.2. GENERAL HEDONIC MODEL......Page 292
12.3. TINBERGEN’S LINEAR–QUADRATIC MODEL......Page 295
12.4. IDENTIFICATION......Page 298
12.4.1. Identification of the Additive Model......Page 301
12.4.2. Identification of the Nonadditive Model......Page 304
12.5.1. Estimation of the Additive Model......Page 306
12.6. SIMULATION AND ESTIMATION RESULTS......Page 308
12.6.1. Model 1: Specification and Simulation Results......Page 309
12.6.2. Model 1: Estimation Results......Page 320
12.6.3. Nonlinear Additively Separable Specifications, Model 2: Simulation Results......Page 321
12.6.5. Model 3: Simulation and Estimation Results......Page 328
APPENDIX: TABLES......Page 337
REFERENCES......Page 352
13.1. INTRODUCTION......Page 355
13.2. APPLIED GENERAL EQUILIBRIUM MODELS CAN DO A GOOD JOB: SPAIN 1985–1986......Page 357
13.3. MODELS OF NAFTA DID NOT DO A GOOD JOB......Page 363
13.4. WHAT DO WE LEARN FROM THESE EVALUATIONS?......Page 372
13.5. SECTORAL DETAIL: WHAT DRIVES INCREASES IN TRADE?......Page 373
13.6. BIG QUESTION: WHAT DRIVES CHANGES IN PRODUCTIVITY?......Page 379
13.7. CHALLENGE......Page 384
APPENDIX......Page 386
REFERENCES......Page 388
14.1. INTRODUCTION......Page 392
14.2. BACKGROUND......Page 394
14.3. A TRADE MODEL FOR DECOMPOSITION ANALYSIS......Page 396
14.3.1. Production......Page 397
14.3.2. Labour Markets......Page 398
14.3.4. Equilibrium Conditions......Page 399
14.4. CALIBRATING A TRADE MODEL FOR DECOMPOSITIONAL ANALYSIS......Page 400
14.5. DECOMPOSITION EXPERIMENTS WITH CALIBRATED TRADE MODELS......Page 403
14.6. U.K. DATA FOR TRADE DECOMPOSITION EXPERIMENTS......Page 404
14.7. SOME RESULTS FROM DECOMPOSITION EXPERIMENTS......Page 408
14.8. CONCLUDING REMARKS......Page 412
REFERENCES......Page 413
15.1. INTRODUCTION......Page 416
15.2.1. Model Design......Page 418
15.2.2. Estimation and Validation......Page 419
15.2.3. Effective Use of Policy Models......Page 421
15.3. TRADE POLICY......Page 422
15.3.1. NAFTA......Page 423
15.3.2. CGE Models in the NAFTA Debate......Page 424
15.3.3. Agriculture, Migration, and Labor Markets......Page 427
15.4. PUBLIC FINANCE......Page 429
15.4.1. Marginal Cost of Funds......Page 430
15.4.2. Tax Reform......Page 432
15.5. STRUCTURAL ADJUSTMENT......Page 433
15.6. INCOME DISTRIBUTION......Page 436
15.7. CONCLUSIONS......Page 437
REFERENCES......Page 438
Index......Page 443
