Economic Policy Using Applied General Equilibrium Models: An Overview

Francisco André, Manuel Alejandro Cardenete and Carlos Romero ()
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Carlos Romero: Technical University of Madrid Research Group: Economics for a Sustainable Environment

Chapter Chapter 2 in Designing Public Policies, 2010, pp 9-31 from Springer

Abstract: Abstract In the research presented throughout this book, a general equilibrium model serves to assess how the economy as a whole will react to any exogenous change. This chapter reviews general equilibrium theory and its transition to applied general equilibrium models. Specifically, we start by offering an overview of the theory of general equilibrium modelling from its origins and give a taste of how the theory evolved into applied models. We also review the key elements of an applied general equilibrium model, such as modelling production technology, consumers’ behaviour, the activity of the public and the foreign sector and input markets. We also introduce the two basic techniques used to determine the numerical values of the model parameters – calibration and econometric estimation – as well as the identification of the benchmark equilibrium. The chapter concludes with a survey of some pioneering applications of general equilibrium models classified by fields and a critical appraisal of the major pros and cons of applied general equilibrium models today.

Keywords: General Equilibrium; Demand Function; Productive Sector; Competitive Equilibrium; General Equilibrium Model (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:spr:lnechp:978-3-642-12183-8_2

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DOI: 10.1007/978-3-642-12183-8_2

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