Elements of a CGE Model

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### Elements of a CGE Model

Self-Assessment

How to Do the Self-Assessment
• View the presentation as a slide show.
• Move your cursor over the bottom left corner of the page to display navigation buttons.
• Click on the right-arrow in the lower left corner to view the correct answer.
• After completing a question and viewing the answer, click on the right-arrow to move to the next question.
• Click on the left-arrow in the lower left corner to return to the previous question.

A model experiment entails:

• changing one or more exogenous variables,
• solving the model, and
• comparing the new model results with the calibrated, base model solution.

The model calibration procedure calculates the shift and share parameters of supply and demand equations so that, with the given elasticities, the equations replicate the balanced, base year data.

The price of a good differs along the supply chain between producers and consumers due to taxes, transport costs and price normalization.
FOB export prices

include sales taxes.

include import tariff charges.

A factor mobility elasticity

describes factors’ willingness to change employment as relative wages change across industries.

describes the supply side of factor markets.

affects industries’ shares in the employment of a factor.

All of the above.

Macro closure describes:

production decisions about inputs and output levels, which determine the aggregate level of economic output.

the modeler’s identification of all of the variables in the model that are exogenous.

whether aggregate factor supplies are assumed to be fixed or endogenous.

which of the two variables – savings or investment – will adjust to maintain the identity that savings equals investment.

The shift parameter in the model’s production function

is usually assumed to be zero.

is typically an endogenous variable in CGE models.

is provided by the modeler as an input into the model calibration procedure.

is a calibrated parameter that describes factor productivity and can be modified in an experiment.

Model calibration

replicates the initial equilibrium data base.

requires an initial equilibrium data base (SAM) and elasticity parameter values.

calculates the shift and share parameters used in the production and utility functions.

All of the above.

A model numeraire

fixes one or more prices, which makes the model “square,” with the same number of variables and equations.

is an endogenous variable whose value changes as a result of experiments.

must be defined as a CPI or PPI, otherwise models’ price and quantity results will be affected.

is a price that remains fixed at its initial level and serves as a benchmark against which changes in all other prices are measured.

A normalized price

is the regular price, after the store-wide sale is over.

allows the base data, expressed in value terms, to be interpreted as the quantity per \$1 (or one unit of any currency).

reduces database requirements to value data alone, while allowing the model to generate results for quantities, prices and values.

Both B and C.

Matching ProblemsClick on the pen in the lower left corner and use it to draw a line that show a match between two concepts
Match the elasticity to the outcome:

Factor substitution

Import substitution

Export supply

Factor supply

Export demand

Exporter’s world market share

Export share in production

Factors’ shares in production

Import share of consumption

Factor employment by industry

Match the prices for country r, good i:

Producer price

World export price

FOB export price

Consumer price

CIF import price

Exporter fob price plus insurance and freight

Producer price plus export tax or subsidy

Received by producer, includes production tax or subsidy

Trade-weighted sum of bilateral fob export prices

Producer price plus sales tax (domestic good); cif price plus sales tax and import tariff (imported good)

Congratulations!

You have completed the CGE Cloud ClassroomSelf-Assessment on

ELEMENTS OF A CGE MODEL

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