Amedeo Fossati - Policy Evaluation with Computable General Equilibrium Models

First published 2002

by Routledge

11 New Fetter Lane, London EC4P 4EE

Simultaneously published in the USA and Canada

by Routledge

29 West 35th Street, New York, NY 10001

Routledge is an imprint of the Taylor & Francis Group

2002 Editorial material and selection, Amedeo Fossati and Wolfgang Wiegard; individual chapters, the authors

Typeset in 10/12 pt Baskerville by Newgen Imaging Systems (P) Ltd., Chennai, India Printed and bound in Great Britain by The Cromwell Press, Trowbridge, Wiltshire

All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing form the publishers.

British Library Cataloguing in Publication Data
A catalogue record for this book is available
from the British Library

Library of Congress Cataloging in Publication Data
Policy evaluation with computable general equilibrium models/edited
by Amedeo Fossati and Wolfgang Wiegard.

p. cm.

Includes bibliographical references and index.

1. Equilibrium (Economics)Econometric modelsEvaluation.

2. Economic policyEconometric modelsEvaluation.

I. Fossati, Amedeo, 1937- II. Wiegard, Wolfgang.

HB145.P647 2001

339.515195-dc21

ISBN 0-415-25671-2

PART I
Methodology

PART II
Imperfect competition

PART III
Environment

PART IV
Pension reform

PART V
Miscellaneous

Figures

Charts

Ballard, Charles: Michigan State University, USA; e-mail:

Bhringer, Christoph: Centre for European Economic Research, Mannheim, Germany; e-mail:

Broer, D. Peter: Erasmus University Rotterdam and CPB Netherlands Bureau of Economic Policy Analysis, The Netherlands; e-mail:

Cavalletti, Barbara: University of Genova, Italy; e-mail:

De Santis , Roberto A.: European Central Bank, Frankfurt am Main, Germany; e-mail:

Devarajan, Shantayanan: World Bank, Washington, USA; e-mail:

Dixon, Peter B.: Centre of Policy Studies, Monash University, Australia; e-mail:

Dufournaud, Christian M.: University of Waterloo, Canada; e-mail:

Edwards, T. Huw: Centre for the Study of Globalisation and Regionalisation, Warwick, UK; e-mail:

Fehr, Hans: University of Wrzburg, Germany; e-mail:

Harrison, Glenn W.: University of South Carolina, USA; e-mail:

Hutton, John P.: University of York, UK; e-mail:

Jensen, Jesper: Copenhagen Economics, Denmark; e-mail:

Ligeois , Philippe: ECARE, Universit Libre de Bruxelles and CORE, Universite Catholique de Louvain, Belgium; e-mail:

Lbke , Eckhard: University of Mnster, Germany; e-mail:

Mercenier, Jean: Thema and University of Cergy-Pontoise, France; e-mail:

Parmenter, Brian R.: Centre of Policy Studies, Monash University, Australia; e-mail:

Petersen, Toke Ward: University of Copenhagen and Statistics Denmark; e-mail:

Piazolo, Daniel: Institute of World Economics, Kiel, Germany; e-mail:

Pireddu, Giancarlo: PricewaterhouseCoopers Corporate Finance and University of Milano Bicocca, Italy; e-mail:

Rimmer, Maureen T.: Centre of Policy Studies, Monash University, Australia; e-mail:

Ruocco, Anna: University of Regensburg, Germany; e-mail:

Rutherford, Thomas F.: University of Colorado, Boulder, USA; e-mail:

Springer, Katrin: Institute of World Economics, Kiel, Germany; e-mail:

Steigum, Erling: Norwegian School of Management, Oslo; e-mail:

Suthiwart-Narueput, Sethaput: Ministry of Finance, Thailand and World Bank, USA; e-mail:

Thierfelder, Karen E.: U.S Naval Academy, USA; e-mail:

Tosun, Mehmet Serkan: Syracuse University, USA; e-mail:

We would like to express our appreciation to Bernadette Burke for revising the English language version, and to Orietta Bertonasco for her patient and skilful secretarial assistance.

Applied General Equilibrium - perhaps more often named Computable General Equilibrium (CGE) modelling is a relatively new field in economics. The fact is that CGE modelling, by applying the Walrasian approach to real economies, is a very useful tool for policy makers in matters where market linkages are the dominant characteristic. CGE modelling has advanced considerably from the first seminal approach, with confidence in and the reliability of the results becoming ever more widespread, provided that the model is used correctly and the right questions posed. In fact, CGE models must be tailored to the particular policy issue under investigation, in order to quantify the effects of policy changes. A first peculiarity of the approach is that results are not just qualitative, but quantitative too, since computable models are complex systems of quantitative linkages among variables. A second, more important, characteristic is the complexity of the scenarios that can be specified within the model considered: such peculiarity permits analysis automatically excluded by other approaches. To put it briefly, CGE models allow specification of economies with the desired level of detail both as regards the behaviour of the economic agents and as regards sector and factor markets linkages.