Rowing along the computable general equilibrium modelling mainstream

Abstract

Theoretical, empirical, and technical principles of computable general equilibrium models (CGE models) development have been presented. It is commented how to model the economical processes using this approach. many economists develop the CGE mosels in order to solve the problems of economical forecast. But the resonable criticism of this method is ignored. By analyzing the approaches to CGE models development in the paper it is concluded that the majority of CGE models are not able to describe properly the operation of real economics losing to the method of interindustry forecast. In the recent time the CGE models have been widely used in economics. The presented paper explain why such attractive methods can lose its popularity.

How Useful are Computable General Equilibrium Models for Sustainability Impact Assessment?

“…Although the computer representation of the economy is complex enough to reflect its essential features, it may still retain the tractability characteristics of their analytical counterparts (Kehoe and Kehoe, 1994). In other words, the CGE methodology allows models of large dimensions to be quantitatively solved whilst retaining the basic general equilibrium structure of their 6 However, other downsides of the methods may be further identified if one evaluates in detail the appropriateness of functional forms, closure rules, "dynamic" modelling elements and other aspects related to modelling performance (see, for example, Grassini, 2004, andMcKitrick, 1998, for a more in-depth critical evaluation of CGE models). 7 The Walrasian general equilibrium theory states that in an economy where consumers are endowed with factors and demand produced goods, and firms demand factors and produce goods with a fixed coefficients production technology (or more generally, a constant returns to scale production function), both output and factor markets clear, whilst perfect competition assures that producer prices equal the costs of production for every operating activity.…”

“…theoretical counterparts (Glebe, 2003). This is because CGE models have emerged as the result of combined efforts of theorists that laid the foundations of general equilibrium theory, applied economists that looked at the real economy using the theoretical foundations, and mathematicians that have developed tools to bring about the feasibility of numerical computations (Grassini, 2004) A more compact definition may thus present an CGE model as an analytical deterministic integrated system of non-linear equations derived from the economic theory of optimising behaviour of rational economic agents that describes the simultaneous linkages between markets, institutions and factor resources that renders an all-markets clearing equilibrium numerical solution. It could be compared to a scientific laboratory experiment where the modelled economy constitutes the subject of the experiment, the assumptions made are the necessary conditions for the experiment to work, and the exogenous policy changes are the shocks that are administered to the subject in order to investigate their potential effect.…”

“…9 8 General equilibrium problems have been approached in the last three decades more from a computational and practical perspective due to the pioneering work undertaken in the 1950s, 1960s and 1970s notably by James Meade, Harry G. Johnson, Arnold Harberger, H. Scarf, John Shoven and John Whalley. 9 Because CGE models usually work at a level of detail halfway between micro and macro variables, some authors have labelled their level of detail as being "meso", namely the level at which policy makers are interested in (Grassini, 2004).…”

The Transatlantic Trade and Investment Partnership and the Role of Computable General Equilibrium Modelling: An Exercise in ‘Managing Fictional Expectations’

“…With respect to the first, this ignores that individuals are often driven by a 'more complex set of values' (Scrieciu 2007: 680), whilst there are also often information asymmetries between parties involved in market transactions (see the seminal piece by Akerlof 1970). General equilibrium conditions, moreover, are unlikely to be met in the real world, where labour and product markets rarely all 'clear' at a given moment in time (Ackerman 2004: 16;Grassini 2007). Indeed, the Sonnenschein-MantelDebreu theorem (one of whose authors was also one of the fathers of general equilibrium theory, Gérard Debreu himself) mathematically demonstrates that (even assuming perfect rationality) it is axiomatically impossible to arrive at a unique equilibrium point in the macroeconomy by scaling up individual market equilibria (Watson 2014: 22-4).…”

Imperfect Markets and the Properties of Macro-economic-environmental Models as Tools for Policy Evaluation

“…This work has been done -concerning CGE models -by Grassini (2007), Serban Scrieciu (2007), and others. We are interested in the question which influence the central assumption about the market structure has on the properties of the models when they are used as instruments for policy assessment.…”