Simulating the U.S. Recession with and without the Obama package: the role of excess capacity

Peter Dixon and Maureen Rimmer

Centre of Policy Studies/IMPACT Centre Working Papers from Victoria University, Centre of Policy Studies/IMPACT Centre

Abstract: Simulations with dynamic, single-country, CGE models typically imply that reductions in domestic demand, e.g. a cut in investment, generate increases in exports and reductions in imports facilitated by real depreciation. However, currently in the U.S. a large reduction in investment is occurring simultaneously with a contraction in exports and little movement in the real exchange rate. We show that to describe this situation it is necessary to drop the standard CGE assumption that capital is always fully employed in every industry. After introducing an excess-capacity specification, we simulate the U.S. recession with and without the Obama stimulus package.

Keywords: U S recession; CGE modelling; excess capacity; sticky rents; mark-up pricing (search for similar items in EconPapers)
JEL-codes: C68 D50 E30 E60 (search for similar items in EconPapers)
Date: 2010-01
New Economics Papers: this item is included in nep-cmp and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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