Global Comparative Statics in General Equilibrium: model building from theoretical foundations

James Markusen

Journal of Global Economic Analysis, 2021, vol. 6, issue 2, 86-123

Abstract: International trade economists made seminal contributions to general equilibrium theory, moving away from an emphasis on existence of equilibrium to algebraic formulations which enabled us to characterize key relationships between parameters and variables, such as that between tariffs and domestic factor prices and welfare. But the early analyses remained limited in value for policy evaluation: the analysis was local, it provided only qualitative results, it was limited to very small models, and strictly interior solutions had to be assumed. The contribution of this paper is pedagogic and methodological, providing a primer for those wishing to do or teach general-equilibrium counterfactuals on computable general-equilibrium (CGE) or structural econometric models. I show how the tools from early local comparative statics analyses can be generalized via the use of Shepard’s lemma, duality, complementarity and the Karush-Kuhn-Tucker theorem into a global, quantitative analysis of large changes in high-dimension models which also allows for regime changes and corner solutions. I then show how the resulting non-linear complementarity problem directly translates into a numerical model using GAMS (general algebraic modeling system). The paper concludes with two examples: (a) comparison of a tax versus a real trade/transactions cost, (b) comparison of a tax versus a quantitative restriction such as a quota or license.

Keywords: Duality; Complementarity; KKT conditions; Global comparative statics; Corner solutions; GAMS (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.jgea.org/ojs/index.php/jgea/article/view/130/149 (application/pdf)

Related works:
Working Paper: Global Comparatives Statics in General Equilibrium: Model Building from Theoretical Foundations (2020)
Working Paper: Global Comparatives Statics in General Equilibrium: Model Building from Theoretical Foundations (2020)
Working Paper: Global Comparatives Statics in General Equilibrium: Model Building from Theoretical Foundations (2020)
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:gta:jnlgea:v:6:y:2021:i:2:p:86-123

DOI: 10.21642/JGEA.060203AF

Access Statistics for this article

More articles in Journal of Global Economic Analysis from Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University Contact information at EDIRC.
Bibliographic data for series maintained by Jeremy Douglas ().