You can't have a CGE recession without excess capacity

Peter Dixon and Maureen Rimmer

Economic Modelling, 2011, vol. 28, issue 1, 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)
JEL-codes: C68 D50 E30 E60 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999310001082
Full text for ScienceDirect subscribers only

Related works:
Journal Article: You can't have a CGE recession without excess capacity (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

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

DOI: 10.1016/j.econmod.2010.06.011

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().