Professional Documents
Culture Documents
October,1 2015
Content
1 Introduction
4 Literature
However,
However,
However,
For example...
• Evaluate the impacts on: macroeconomic variables,trade flows,
industrial activity, labor markets, factor prices, commodity prices,
and regional or household welfare
For example...
• Evaluate the impacts on: macroeconomic variables,trade flows,
industrial activity, labor markets, factor prices, commodity prices,
and regional or household welfare
• of changes in: carbon emission quota schemes, energy taxes,
technology subsidies, international terms of trade, energy pricing
policy, and terms of trade.
Treatment of time
• Static
• Fake dynamics
• Recursive dynamcis
• Ramsey model:Steady state
• Overlapping generations
Regionalization
• Single country with closure rules
• Multi-regional model
Outline
1 Introduction
4 Literature
Model description
Model description
Model description
Model description
Model description
Model description
Model description
1 for every firm the set of inputs used and outputs produced
maximize profit at those prices given the firms production
technology (profit maximization),
3 for each market (factors and goods), demand does not exceed
supply (market clearance).
max W = U(X , Y )
KX ,KY ,LX ,LY ,pK ,pL ,pX ,pY
s.t.
X = F (KX , LX )
Y = G(KY , LY )
K X + KY ≤ K
LX + LY ≤ L
pX X + pY Y ≤ pK (KX + KY ) + pL (LX + LY )
Exercise Complementarity
Some help:
How do we know which inequality is associate with which variable and
the direction of the inequality? Economic theory tells you which
variable must be associated with which inequality and which way the
inequality goes.
a. ask the question whether or not a particular direction of the
inequality is consistent with economic equilibrium.
b. ask the question, “what must be true if the inequality is strict in
equilibrium”?
Solution
Three outcomes of partial equilibrium example
Consumer behavior
Producer behavior
∂E (pX ,pY )
=: d (p
i X, p )
∂pi Y
W − I/pW ≥ 0 ⊥ pW (6)
Income balance:
I = pK K + pL L . (9)
Price normalization
• Equilibrium determines only relative prices but not absolute price level.
• If all prices are multiplied by the same scalar, consumption choices do not
change: demand function is homogeneous of degree zero. (this follows
from continuity and monotonicity assumptions on consumers’
preferences).
• Problem: Prices are only defined up to scalar, i.e. there are infinitely
many prices that solve the system of equations (system is
over-identified).
• We need one more equation to fix the absolute price level. This
equation defines the units of account, or the numeraire price.
But then we have more equations than unknowns. Thus, one of the
•
equations can be dropped and we end up with an exactly identified
system.
Solution: Walras’ law.
•
• Consumer fully expends his wealth.
• Implication: If all markets but one are cleared, then the remaining
market must also be cleared.
Outline
1 Introduction
4 Literature
A stylized SAM
X Y W K L CONS rowsum
X (pX ) 100 100
Y (pY ) 100 100
W (pW ) 200 200
L(pL ) 25 75 100
K (pK ) 75 25 100
CONS (Inc) 100 100 200
colsum 100 100 200 100 100 200
(10)
(11)
Calibration
Price normalization
8 PARAMETER
9 theta(g,h) ’Share parameters’,
10 sigma(h) ’Substitution parameters’,
omega(g,h)
11
’Endowment parameters’;
15 theta(g,h) = uniform(0,1);
16 alias (g,gg);
17
theta(g,h) = theta(g,h)/sum(gg,theta(gg,h));
18 sigma(h) = uniform(0,3);
19
omega(g,h) = uniform(0,1);
22 VARIABLE
23 P(g) Y(h) ’Market price for goodg’,
24 C(h) ’Household income’,
D(g,h)
25
XI(g) ’Unit cost of consumption’,
26
’Uncompensated demand’
27
’Market excess demand’;
23 P.FX("g1") = 1;
Price normalization
• As illustrated in the left side of the table, when the exchange model is properly
specified, the same relative equilibrium prices are returned irrespective of the
numeraire specification.
• Likewise the “Walras check”, the imbalance in the omitted numeraire market
clearance condition is zero.
• Conversely, when an imbalance is introduced in the model, both absolute and
relative prices depend on the numeraire choice and the “Walras check” is
nonzero, as indicted on the right side of the table.
3 PARAMETER
4 S "Elasticity of substitution between capital and labor (X
sigma_x
sector)" /.5/
5 sigma_y "Elasticity of substitution between capital and labor (Y
sector)" /.5/
6 sigma_w "Elasticity of substitution between X and Y (W sector)" /.5/ "Labor endowment
7 lendow multiplier" /1/;
11 POSITIVE VARIABLES
12 X ’X sector output index’
13 Y ’Y sector output index’
W
14
’Welfare index’
15 PX
PY ’Price index for commodity X’
16
PL ’Price index for commodity Y’
17
18
PK ’Price index for primaryfactor L’
19
P ’Price index for primaryfactor K’
W ’Price index for welfare’
20
H
H ’Household income and expenditure’;
9 * Marketclearing conditions:
10 MKT_X.. 100 *X =E= 0.5*(PW/PX)**sigma_w W*200;
*
11 MKT_Y.. 100 *Y =E= 0.5*(PW/PY)**sigma_w W*200;
*
12 MKT_W.. 200 *W =E= HH / PW;
13 MKT_L..
100 *lendow =G= 0.25*100*X*(PX/PL)**sigma_x
14
+ 0.75*100*Y*(PY/PL)**sigma_y;
15
MKT_K.. 100 =E= 0.75*100*X*(PX/PK)**sigma_x
16
+ 0.25*100*Y*(PY/PK)**sigma_y;
18 * Income definition:
19 I_HH.. HH =E= 100*lendow*PL + 100*PK;
5 * Initialize variables:
7 X.L=1;Y.L=1;W.L=1;PW.l=1;PX.L=1;PY.L=1;PK.L=1;PL.L=1;PW.L=1;HH.L=200;
9 * Set a "numeraire":
11 PW.FX = 1;
13 * Solve statement:
15 SIMPLE_MCP.ITERLIM = 0;
16 SOLVE SIMPLE_MCP USING MCP;
Exercise
Exercise
Outline
1 Introduction
4 Literature
Books
Articles