© Scott McDonald
P1: A Simple Closed Economy CGE Model
This module involves creating the simple 2-sector closed economic general equilibrium (GE) that is commonly presented in Intermediate Microeconomic textbooks using Edgeworth boxes with no policy instruments. The production and consumption functions are Cobb-Douglas. It is the simplest possible Computable General Equilibrium (CGE) model.
The materials require the use of a GAMS USER LIBRARY; so studying the instructions on the operation of a User Library is necessary.
Programme
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Topic |
Tasks |
Exercises |
Files (in order) |
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P1:1 |
Cobb Douglas Production and Utility Functions |
Mathematics of CD functions |
Primal & first order conditions; calibrating shift & share parameters |
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P1:2 |
Coding Production and Utility functions |
Adding production & Utility functions |
Coding a basic 2*2*2*2; testing a model |
Basic 2 Sector Closed Model.pdf Basic Closed Model pt 1 ppt.pdf Basic Closed Model pt 1 ppt.mp4 Basic Closed Model pt 2 ppt.pdf Basic Closed Model pt 1 ppt.mp4 Basic 2 Sector Model Exercises.pdf |
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P1:3 |
Simple CGE experiments |
Running experiments; interpreting results |
Running experiments; interpreting results |
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P1:4 |
Policy Analysis |
Impact of changes in the factor supply |
Interpreting results |
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Readings
Microeconomics theory textbook with detailed treatment of general equilibrium, e.g.,
Gravelle, H. and Rees, R., (2004). Microeconomics, 3rd edition. Prentice Hall: London. Chapter 12, pp 250 - 278.
Nicholson, W., (1998). Microeconomic Theory: Basic Principles and Extensions, 7th Edition. Dryden Press: Fort Worth. Chapter 16, pp 459 – 500.
Shoven, J.B. and Whalley, J., (1984). ‘Applied General Equilibrium Models of Taxation and International Trade: An Introduction and Survey’, Journal of Economic Literature, Vol 22, pp 1007-1051