Parameterization of applied general equilibrium models with flexible trade specifications based on the Armington, Krugman, and Melitz models

Kazuhiko Oyamada

No 380, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: This paper explains how the Armington-Krugman-Melitz supermodel developed by Dixon and Rimmer can be parameterized, and demonstrates that only two kinds of additional information are required in order to extend a standard trade model to include Melitz-type monopolistic competition and heterogeneous firms. Further, it is shown how specifying too much additional information leads to violations of the model constraints, necessitating adjustment and reconciliation of the data. Once a Melitz-type model is parameterized, a Krugman-type model can also be parameterized using the calibrated values in the Melitz-type model without any additional data. Sample code for the General Algebraic Modeling System (GAMS) has also been prepared to promote the innovative supermodel in the AGE community.

Keywords: Microeconomics; Trade theory; International trade; Applied general equilibrium; Calibration; Heterogeneous firms (search for similar items in EconPapers)
JEL-codes: C68 D58 F12 L16 (search for similar items in EconPapers)
Date: 2013-01-01
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Citations: View citations in EconPapers (4)

Published in IDE Discussion Paper = IDE Discussion Paper, No. 380. 2013-01-01

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