RESEARCH SEMINAR “THE USE OF COMPUTABLE GENERAL EQUILIBRIUM MODELS (CGE) FOR POVERTY AND INCOME DISTRIBUTION ANALYSIS” Madrid, October 21 st – 23 rd 2013 Directed by: Prof. de Arce & Prof. Mahía Applied Economics Department, UAM

Web Page: WIFI connection:User:nopoor2013 Password:20!3%NpRu4M Software:GAMS Reception of Participants:Facultad CC.EE.EE. UAM Módulo 14. Centro Predicción Económica Salón de Grados “Emilio Fontela” Classroom:Facultad CC.EE.EE. Mornings: Módulo 14. Class: 105 (downstairs) Afternoons: Mód. 14. Class: 201 (middle floor)

COMPUTABLE GENERAL EQUILIBRIUM MODELS COMPUTABLE GENERAL EQUILIBRIUM DATA (SAM) MicroMacro MATHS NATIONAL ACCOUNTS

COMPUTABLE GENERAL EQUILIBRIUM MODELS

STATIC vs DYNAMIC – PARTIAL vs GENERAL EQUILIBRIUM Economists of the Time: Partial Equilibrium and Static concept IO models (Leontief): General Equilibrium and Static concept Macroeconometric models (Tinbergen, Klein): GE and Dynamic

SOME HITS OF A NON EXHAUSTIVE HISTORY OF CGE MODELS Quesnay, 1758 Laussane Academy, (Switzerland): Léon Walras and Vilfredo Pareto Leontief’s “Inter-relation of prices, output, savings and investment” (1937) The Arrow- Debreu general equilibrium theory (1954) The Cambridge Growth Project and Richard Stone (1960’S) Norway CGE Model, Johansen, 1960 AGE Model and Scarf linnear solutions Taylor & Black, Introducing external disequilibrium Adelson and Robinson, “Chain of models as a dynamic approach” MONASH / ORANI Models for Australia and GEMPACK software GTAP – IFPRI – World Bank

USING CGE MODELS ( from Cockburn et Al. (2008) ) the effects on: Macro variables, including measures of nation-wide or even global economic welfare; industry variables; regional variables; labour market variables; distributional variables; and environmental variables of changes in: taxes, public consumption and social security payments; tariffs and other interferences in international trade; environmental policies; technology; international commodity prices and interest rates; wage setting arrangements and union behavior; and known levels and exploitability of mineral deposits (the Dutch disease).

THE SIMPLEST MODEL Source: Hosoe, 2004

SOCIAL ACCOUNT MATRIX (SAM) SCHEMA SAM is read from column to row, so each entry in the matrix comes from its column heading, going to the row heading: For example, Consumption (C) comes from households and is paid to firms.. Source: Mitra-Khan, 2008

EXTENDED CGE MODEL (Example in Hosoe, 2004)

NameProduction Functionσ (K,L)ε Linnear ∞ 1 Cobb-Douglas1α+β Leontief 0 1 if CES h MATHEMATICAL FUNCTIONS FOR COMBINING ELEMENTS (… for example, production factors) … CES as a Generalized Exprexion ….

MATHEMATICAL FUNCTIONS FOR COMBINING ELEMENTS (… for example, production factors) The elasticity of Substitution (sigma) represents the shape of the isoquants curves Leontief Linnear Cobb-Douglas

COMPUTABLE GENERAL EQUILIBRIUM MODELS DATA Social Account Matrix Identifying the elements PARAMETERS Declaring parameters Calculations VARIABLES Declaring variables Defining equations CALIBRATION Producing the initial General Equilibrium SHOCK Introducing a shock in the system Return to the equilibrium Data Schema Functional Schema Simulation Game

SWOT DIAGRAM STRENGTHSOPPORTUNITIES Performing simulations in spite of limited data. Matching theory and data. Disaggregating actors behaviour from specific surveys. Clarifying the political debate. WEAKNESSTHREATS Non testing capabilities about elasticities estimates. Assumptions about functions and some elasticities Exponential increase of linkages. Irregular calibration methods.

REFERENCES Cockburn, J., Decaluwé, B. & Robichaud, V. (2008): “Trade Liberalization and Poverty: A CGE Analysis of the 1990s Experience in Africa and Asia”Cockburn, J., Decaluwé, B. & Robichaud, V. (2008): “Trade Liberalization and Poverty: A CGE Analysis of the 1990s Experience in Africa and Asia”. Poverty and Economic Policy (PEP) Research Network, Hosoe, N. (2004): “Computable General Equilibrium Modeling with GAMS”. Hosoe, N. (2004): “Computable General Equilibrium Modeling with GAMS”. National Graduate Institute for Policy Studies, Mimeo. Mitra-Khan, B. (2008): Debunking the Myths of Computable General Equilibrium ModelsMitra-Khan, B. (2008): Debunking the Myths of Computable General Equilibrium Models, SCEPA Working Paper