On the need to compensate the compensating variation in CGE modeling

The message of this research is that in the standard calibrated setting of Computational General Equilibrium (CGE) models, the welfare measures typically used to compare benchmark with counterfactuals are numéraire dependent. This evaluation bias affects the compensating variation and the Konüs index of cost of living. We show that the equivalent variation is neutral regarding the choice of value units in calibrated models but would be affected as well in uncalibrated CGE models. We illustrate with a simple example and propose an even simpler theoretical solution to overcome these biases; all that is required to have correct welfare estimates is to compensate normalizing with a suitable price index. This type of correction is necessary to overcome the sometimes blind implementation of welfare measures in numerical general equilibrium analysis. We show that the induced quantitative errors may be substantial providing biased welfare estimates and misleading results.     

世界连接CGE模型方法、研制与应用

随着世界经济一体化和空间经济学的日益发展,系统模型方法在国家或区域间经济联动方面的扩展和深化研究正在显现出巨大的应用价值。本文首先开发一个世界连接可计算一般均衡模型,科学揭示各经济体的运行特征,为定量剖析世界范围内各经济体的经济增长、结构变动方面提供一个系统分析框架：一方面在模型的理论框架中,分析了世界CGE模型各个模块的构建思想和对应的主要方程及其特征;另一方面建立了世界连接社会核算矩阵。然后通过动态模拟分析,检验链接模式和国家间经济联系,以及应用于各经济体政策变化的综合影响评价。     

On the statistical identification of DSGE models

Dynamic Stochastic General Equilibrium (DSGE) models are now considered attractive by the profession not only from the theoretical perspective but also from an empirical standpoint. As a consequence of this development, methods for diagnosing the fit of these models are being proposed and implemented. In this article we illustrate how the concept of statistical identification, that was introduced and used by Spanos [Spanos, Aris, 1990. The simultaneous-equations model revisited: Statistical adequacy and identification. Journal of Econometrics 44, 87–105] to criticize traditional evaluation methods of Cowles Commission models, could be relevant for DSGE models. We conclude that the recently proposed model evaluation method, based on the DSGE–VAR(λ)$\left(\lambda \right)$, might not satisfy the condition for statistical identification. However, our application also shows that the adoption of a FAVAR as a statistically identified benchmark leaves unaltered the support of the data for the DSGE model and that a DSGE–FAVAR can be an optimal forecasting model.     

Testing the Technology of Human Capital Production: A General‐to‐Restricted Framework

Studies of childhood development have suggested human capital is accumulated in complex and nonlinear ways. Nonetheless, empirical analyses of this process often impose a linear functional form. This paper investigates which technology assumptions matter in quantitative models of human capital production. I propose a general‐to‐restricted procedure to test the production technology, placing constraints on a modified McCarthy function, from which transcendental, constant elasticity of substitution, log‐linear and linear models are obtained as special cases. Applying the procedure to data on child height from the Young Lives surveys, as well as cognitive skills, I find that the technology of human capital production is neither log‐linear nor linear‐in‐parameters; rather, past and present inputs act as complements. I recommend that maintained hypotheses underlying functional form choices should be tested on a routine basis.     

Testing the Technology of Human Capital Production: A General-to-Restricted Framework

Studies of childhood development have suggested human capital is accumulated in complex and nonlinear ways. Nonetheless, empirical analyses of this process often impose a linear functional form. This paper investigates which technology assumptions matter in quantitative models of human capital production. I propose a general-to-restricted procedure to test the production technology, placing constraints on a modified McCarthy function, from which transcendental, constant elasticity of substitution, log-linear and linear models are obtained as special cases. Applying the procedure to data on child height from the Young Lives surveys, as well as cognitive skills, I find that the technology of human capital production is neither log-linear nor linear-in-parameters; rather, past and present inputs act as complements. I recommend that maintained hypotheses underlying functional form choices should be tested on a routine basis.     

THE TRANSPORT SECTOR AND REGIONAL PRICE DIFFERENTIALS: A SPATIAL CGE MODEL FOR CHINESE PROVINCES

With regression formulas replaced by equilibrium conditions, a spatial CGE (Computable General Equilibrium) model can substantially reduce data requirements. Detailed regional analyses are thus possible in countries where only limited regional statistics are available. Alhough regional price differentials play important roles in multiregional settings, transport does not receive much attention in existing models. This paper formulates a spatial CGE model that explicitly considers the transport sector and FOB/CIF prices. After describing the model, the performance of our model is evaluated by comparing the benchmark equilibrium for China with a survey-based interregional I-O table for 1987. The structure of Chinese economies is summarized using information obtained from the benchmark equilibrium computation. This includes regional and sectoral production distributions and price differentials. The equilibrium for 1997 facilitates discussion of changes in regional economic structures that China has experienced in the decade.     

Regional and National Perspectives of China's Integration into the WTO: A CGE Inquiry with Emphasis on the Agricultural Sector

China's integration in the World Trade Organization (WTO) is already on its fast track. Understanding the complexity of China's dynamic adjustment resulting from its membership in the WTO and the differential regional impacts within China is very important and poses crucial challenge in evaluating its impacts. In this study, we make an attempt to incorporate seven regional commodity-detailed models into a dis-aggregated multi-sector and multi-region China Computable General Equilibrium (CGE) framework. This framework has allowed us to evaluate the impacts of China's integration into the WTO at both national and regional levels and analyze the inter-linkages between China's provincial agricultural markets. Using the framework and assumptions about factor mobility, we assess the impacts on China's agricultural and non-agricultural sectors (regionally and nationally) by reduction of its trade policy distortions, such as tariffs rate changes and quantitative restrictions. We also evaluate the structural changes on China's national and regional production and trade as China implements its commitments and moves into the WTO.     

Fundamentals of Social Accounting

A series of social accounting matrices (SAMs) are developed in this paper from first principles. Starting with the basic concepts of an institution, real assets and financial claims, the notions of a transaction and production are introduced, and it is shown that a SAM can be developed from the fundamental transactions identity. Accounts for real assets and financial claims are then grafted on to this initial SAM by reference to a similarly fundamental assets identity. Hence, a fully articulated SAM framework is developed which covers institutions, production, assets and their appreciation.     

超越对数函数要素替代弹性公式修正与估计方法比较

对超越对数函数要素替代弹性估计方法进行专门研究,修正了超越对数生产函数要素替代弹性公式错误,梳理超越对数成本函数各类替代弹性定义,综合考虑数据易得性、估计可靠性、定义合意性以判定各类估计方法的相对优劣。研究发现,受困于共线性难题,基于超越对数生产函数计算替代弹性效果不佳;基于超越对数成本函数计算替代弹性更具优势,影子替代弹性凭借出色的理论性质与强稳健性成为首选。     

交叉熵方法理论上的缺陷及其改进研究

本文针对传统交叉熵（CE）方法在平衡和更新社会核算矩阵（SAM）研究中存在的缺陷进行分析,提出了基于离差熵绝对值期望最小化的改进模型1和基于离差熵平方期望最小化的改进模型2。理论结果表明：传统的CE方法得到的解是本文所提出的基于离差熵绝对值期望最小化改进模型1的一种特殊情况。同时为检验模型改进前后的实际效果,本文运用蒙特卡罗方法进行模拟分析,模拟结果表明：改进后的模型2得到的SAM流量矩阵精度比传统的CE方法得到的精度更高,而改进后的模型1得到的精度却相对较低。     

Making unilateral trade liberalisation beneficial to the poor

In this paper, we investigate the impacts of unilateral import liberalisation by a representative South Asian developing economy, Nepal, and demonstrate those conditions required to make the impacts ‘pro-poor.’ Applying the Computable General Equilibrium model to Social Accounting Matrix data, we conclude that import liberalisation is growth-enhancing but that, unfortunately, the rich benefit more than do the poor. We envisage a restructured but plausible model economy that requires a transformational period of ten years, and simulate unilateral trade liberalisation but, in the context of a dynamic model. We conclude that improvement in efficiency parameters, reorganisation of investment patterns, along with reallocation of factors of production by both household group and activity type are required to make growth accrued by import liberalisation ‘pro-poor’ in developing economies such as that of Nepal.     

经济学中一般均衡存在性问题理论述评

本文对经济学中一般均衡理论进行了概述。文中主要介绍了Arrow—Debreu经济模型、均衡存在性定理、存在性涸题在无穷维商品空间上的扩展以及相关工作。     

A large factor model for forecasting macroeconomic variables in South Africa

This paper uses large Factor Models (FMs), which accommodate a large cross-section of macroeconomic time series for forecasting the per capita growth rate, inflation, and the nominal short-term interest rate for the South African economy. The FMs used in this study contain 267 quarterly series observed over the period 1980Q1-2006Q4. The results, based on the RMSEs of one- to four-quarter-ahead out-of-sample forecasts from 2001Q1 to 2006Q4, indicate that the FMs tend to outperform alternative models such as an unrestricted VAR, Bayesian VARs (BVARs) and a typical New Keynesian Dynamic Stochastic General Equilibrium (NKDSGE) model in forecasting the three variables under consideration, hence indicating the blessings of dimensionality.     

Production Technology Estimates and Balanced Growth

Capital‐labour substitution and total factor productivity (TFP) estimates are essential features of many economic models. Such models typically embody a balanced growth path. This often leads researchers to estimate models imposing stringent prior choices on technical change. We demonstrate that estimation of the substitution elasticity and TFP growth can be substantially biased if technical progress is thereby mis‐specified. We obtain analytical and simulation results in the context of a model consistent with balanced and near‐balanced growth (i.e. departures from balanced growth but broadly stable factor shares). Given this evidence, a constant elasticity of substitution production function system is then estimated for the US economy. Results show that the estimated substitution elasticity tends to be significantly lower using a factor‐augmenting specification (well below one). We are also able to reject conventional neutrality forms in favour of general factor augmentation with a non‐negligible capital‐augmenting component. Our work thus provides insights into production and supply‐side estimation in balanced‐growth frameworks.     

WHAT DETERMINES THE ELASTICITY OF SUBSTITUTION BETWEEN CAPITAL AND LABOR? A LITERATURE REVIEW

This paper provides the first comprehensive review of the empirical and theoretical literature on the determinants of the elasticity of substitution between capital and labor. Our focus is on the two-input constant elasticity of substitution (CES) production function. We start by presenting four concise observations that summarize the empirical literature on the estimation of . Motivated by these observations, the main part of this survey then focuses on potential determinants of capital–labor substitution. We first review several approaches to the microfoundation of production functions where the elasticity of substitution (EOS) is treated as a purely technological parameter. Second, we outline the construction of an aggregate elasticity of substitution (AES) in a multi-sectoral framework and investigate its dependence on underlying intra- and inter-sectoral substitution. Third, we discuss the influence of the institutional framework on the extent of factor substitution. Overall, this survey highlights that the effective elasticity of substitution (EES), which is typically estimated in empirical studies, is generally not an immutable deep parameter but depends on a multitude of technological, non-technological, and institutional determinants. Based on these insights, the final section identifies a number of potential empirical and theoretical avenues for future research.     

What you match does matter: the effects of data on DSGE estimation

This paper explores the effects of using alternative combinations of observables for the estimation of Dynamic Stochastic General Equilibrium (DSGE) models. I find that the estimation of structural parameters describing the Taylor rule and sticky contracts in prices and wages is particularly sensitive to the set of observables. In terms of the model's predictions, the exclusion of some observables may lead to estimated parameters with unexpected outcomes, such as recessions following a positive technology shock. More importantly, two ways to assess different sets of observables are proposed. These measures favor a dataset consisting of seven observables. Copyright © 2009 John Wiley & Sons, Ltd.     

VARs,common factors and the empirical validation of equilibrium business cycle models

Equilibrium business cycle models have typically less shocks than variables. As pointed out by Altug (1989) International Economic Review 30 (4) 889–920 and Sargent (1989) The Journal of Political Economy 97 (2) 251–287, if variables are measured with error, this characteristic implies that the model solution for measured variables has a factor structure. This paper compares estimation performance for the impulse response coefficients based on a VAR approximation to this class of models and an estimation method that explicitly takes into account the restrictions implied by the factor structure. Bias and mean-squared error for both factor- and VAR-based estimates of impulse response functions are quantified using, as data-generating process, a calibrated standard equilibrium business cycle model. We show that, at short horizons, VAR estimates of impulse response functions are less accurate than factor estimates while the two methods perform similarly at medium and long run horizons.     

Allowing for uncertainty in exogenous shocks to CGE models: the case of a new renewable energy sector

The paper explores the importance of allowing for uncertainty in the magnitude of exogenous shocks in Computable General Equilibrium (CGE) models. The shock examined is the introduction of a new onshore wind sector in North East Scotland. A simple analytical model is developed to show how, a priori, the size of the new sector (the model shock) is uncertain and asymmetrically distributed as a result of spatial correlation in costs and returns across potential development locations. The importance of allowing for this uncertainty is tested by comparing the results from a CGE model where the sector size is assumed known with certainty to those from a model where the sector size is a random variable with an asymmetric distribution. The results show the extent to which allowing for uncertainty can influence the magnitude of estimated impacts with some variables more sensitive to the uncertainty than others.     

Some Relationships between T-Accounts,Input–Output Tables and Social Accounting Matrices

Some relationships between the T-accounting format for presenting commodity balances; input–output (IO) tables; and social accounting matrices are discussed in this paper. The starting point is to recognize that IO tables do not contain all the information that is needed to complete a social accounting matrix (SAM), or, therefore, for the modelling of phenomena that depend on having a fully articulated SAM, such as the interdependence of the distribution of income and the structure of production. There is a need, therefore, to establish the character of the extra information that is required and this can be achieved by imposing the requirement that a SAM should be consistent with the basic cash identity that is fundamental to all social accounting. A second agendum is to develop the argument that, while T-accounts can, in principle, provide a database equivalent to that of a SAM, in practice, they are typically found to be an imperfect substitute. It is important, therefore, in designing a database, to go beyond the confines of an (extended) IO system and T-accounts. SAMs provide an appropriate framework for doing so.     

Market linkages with fragmented production

I use a Ricardian model to analyze the transmission of technology shocks between countries when production processes are fragmented. The analysis emphasizes the role of three factors in determining how the gains from technical progress are shared between the innovating country and the rest of the world: the elasticity of substitution in consumption of final goods, the elasticity of substitution between intermediate and final production stages, and the pattern of production. In contrast to models with trade in final goods only, a high elasticity of substitution in consumption may be associated with losses for the innovating country when there is complete vertical specialization in production. I also examine the transmission of shocks in a three-country world where two countries are linked in a vertical production relationship.