What is CGE Modeling?
Computable General Equilibrium (CGE) modeling is a type of economic modeling used to study the impacts of economic policies and shocks on the economy as a whole. The goal of CGE modeling is to provide a comprehensive and consistent representation of the interactions among different sectors and agents within an economy.
In a CGE model, the economy is divided into several sectors (such as agriculture, manufacturing, services, etc.), and agents (such as households, firms, government, etc.). The model represents the interdependence among these sectors and agents through their relationships in markets for goods, services, and factors of production.
CGE models are used to analyze a wide range of policy issues, such as trade liberalization, tax changes, environmental regulations, and natural disasters. The models are often used to estimate the impacts of these policies on macroeconomic variables such as GDP, consumption, investment, exports, and imports.
CGE modeling is a powerful tool for policy analysis, but it also has its limitations, including the simplifying assumptions made about the structure of the economy and the data requirements. Therefore, it is important to understand the limitations of CGE models and interpret the results with caution.
There are two main software/coding environments to apply and simulate CGE models
CGE-GTAP is a computational general equilibrium (CGE) model that is used in the study of global trade policies and their impacts. The GTAP model is a widely used tool for evaluating the economic impacts of trade policy and other global economic changes.
To learn CGE-GTAP, you can follow these steps:
GAMS (General Algebraic Modeling System) is a high-level modeling system for mathematical programming and optimization. It is widely used in the field of economics, especially in computable general equilibrium (CGE) modeling, to develop, implement and solve complex mathematical models.
GAMS is particularly useful for CGE modeling because it provides a flexible and efficient platform for representing and solving complex economic models. With GAMS, researchers can easily implement and solve their models and compare the results to alternative scenarios. The system also provides tools for data handling, result visualization, and scenario analysis.
To learn GAMS, you can follow these steps:
Demystifying Modelling Methods for Trade Policy by Roberta Piermartini and Robert Teh (WTO discussion paper No. 10)