You can't have a CGE recession without excess capacity

Peter Dixon and Maureen Rimmer

Economic Modelling, 2011, vol. 28, issue 1-2, 602-613

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)
Date: 2011
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:28:y:2011:i:1-2:p:602-613

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