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Mending the Family Tree: A Reconciliation of the Linearization and Levels Schools of CGE Modelling

Thomas Hertel (), Mark Horridge () and Ken Pearson

Centre of Policy Studies/IMPACT Centre Working Papers from Victoria University, Centre of Policy Studies/IMPACT Centre

Abstract: This paper offers a critical comparison between the North American levels school of applied general equilibrium modelling and the Norwegian/Australian school of linearizers. The paper develops both the levels and linearized representations of a neoclassical, multiregion trade model. This development is used to focus attention on similarities and differences between the two schools. The main conclusions are as follows. i) The method used to solve applied general equilibrium models is not really the issue - the solution method used has become short-hand for a host of cultural differences reflecting the orientation of the two groups. ii) Levels or linearized versions of models are equally valid representations. Either representation is a natural starting point for obtaining accurate solutions of the model. iii) Linearized versions ofter aid transparency in explaining the mechanisms at work in a model. iv) In view of recent developments with the GEMPACK software suite, it is no longer necessary for linearizers to settle for solutions containing linearization errors. v) The two schools have a great deal in common and both would benefit from greater cooperation.

JEL-codes: D58 F11 F41 O49 (search for similar items in EconPapers)
Date: 1991-06
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Published in Economic Modelling, Elsevier, vol. 9(4), pages 385-407, October 1992.

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Journal Article: Mending the family tree a reconciliation of the linearization and levels schools of AGE modelling (1992) Downloads
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