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A Monte Carlo filtering application for systematic sensitivity analysis of computable general equilibrium results

Sébastien Mary (), Euan Phimister (), Deborah Roberts and Fabien Santini

Economic Systems Research, 2019, vol. 31, issue 3, 404-422

Abstract: Parameter uncertainty has fuelled criticisms on the robustness of results from computable general equilibrium models. This has led to the development of alternative sensitivity analysis approaches. Researchers have used Monte Carlo analysis for systematic sensitivity analysis because of its flexibility. But Monte Carlo analysis may yield biased simulation results. Gaussian quadratures have also been widely applied, although they can be difficult to apply in practice. This paper applies an alternative approach to systematic sensitivity analysis, Monte Carlo filtering and examines how its results compare to both Monte Carlo and Gaussian quadrature approaches. It does so via an application to rural development policies in Aberdeenshire, Scotland. We find that Monte Carlo filtering outperforms the conventional Monte Carlo approach and is a viable alternative when a Gaussian quadrature approach cannot be applied or is too complex to implement.

Date: 2019
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DOI: 10.1080/09535314.2018.1543182

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