National CGE Architecture
MODEL LAB · LABORATORY 11
National CGE
Architecture.
Assemble the behavioural economy. Connect producers, households, government, investment and international trade under explicit market-clearing and macroeconomic closure rules to solve a national counterfactual equilibrium.
THE INTEGRATED MODEL
Many blocks.
One economy.
A national CGE model is not a collection of separate calculations. Every block communicates through prices, quantities, incomes and accounting constraints until all selected markets and macro balances reconcile.
Production
Activities choose factors and intermediate inputs to minimize cost under nested technologies.
Commodity markets
Domestic and imported supply meet intermediate, household, government and investment demand.
Households
Factor ownership and transfers determine income, which is allocated across taxes, saving and consumption.
Government
Taxes finance consumption, transfers and saving under a selected fiscal adjustment rule.
Foreign trade
Armington demand and CET supply allocate goods between domestic, import and export markets.
Savings–investment
Institutional saving finances investment, with quantity or price variables restoring macro balance.
FROM BENCHMARK TO COUNTERFACTUAL
Calibrate once.
Solve the shock.
Benchmark
Construct a balanced SAM for the reference economy.
Calibrate
Recover share and scale parameters reproducing the benchmark.
Close
Select endogenous and exogenous variables for every macro balance.
Shock
Change a policy, endowment, technology or world-market variable.
Solve
Find the new simultaneous equilibrium and compare with baseline.
NATIONAL POLICY SCENARIO LAB
Choose the shock.
Define the adjustment.
Run a conceptual national counterfactual. Closure selections change which variables absorb the shock and therefore change the economic interpretation.
MODEL READINGProductivity raises national output and real income. With fixed employment, labour-market adjustment appears principally through the real wage.
CLOSURE DISCIPLINE
Every balance needs
an adjusting variable.
Labour closure
Fixing employment makes wages clear the market; fixing wages makes employment adjust.
Fiscal closure
Government saving, tax rates or expenditure must absorb changes in public revenue.
Savings–investment closure
Investment may follow available saving, or saving rates may adapt to a fixed investment path.
External closure
The exchange rate or foreign saving must restore the balance of payments.
SCIENTIFIC CHECKPOINT
Why does closure
change results?
What is the most accurate explanation?
A macro balance must always have an adjustment mechanism.
