School of Economic Sciences

Regional CGE Models

The Model

Developed by David Holland, Leroy Stodick and Stephen Devadoss

The Washington State regional computable general equilibrium (CGE) modeling system can be used to construct an applied, price flexible general equilibrium, multiple-commodity, single-region model for regional economic policy analysis. The model does distinguish a region's imports by their source either from the rest of the U.S. or the rest of the world. The region's exports are similarly distinguished. Given the treatment of labor and capital markets the model is basically a comparative static analysis tool.

Regional Coverage

The choice of region is entirely up to the user. The model is dependent on the use of IMPLAN regional input-output data to configure the social accounting matrix from which the general equilibrium model is calibrated. Given the wide geographic coverage of the IMPLAN system, this means that models can be constructed for individual counties, combinations of counties, individual states, combinations of states or even the entire United States.

Commodity and Industry Coverage

In the Current model there are 440 commodities and industries from the 2007 IMPLAN accounts for a given region. GAMS (see below) code is provided to construct a regional social accounting matrix (SAM) for the regional economy from the 27 IMPLAN based cge files. The code used to aggregate the regional SAM can include any number of industries and commodities desired by the user. Full detail of industry and commodity accounts may be represented in the SAM if desired. Full detail of the institutional accounts is maintained in the SAM. The regional cge model constructed from the SAM is an industry-commodity model where changes in commodity output come from the various industries that make the commodity as indicated in the regional make matrix. Another alternative that is offered by the regional SAM is the opportunity to construct an input-output model of the industry by industry type like IMPLAN or commodity by industry models or commodity by commodity. In a type SAM (IMPLAN) model treating households as endogenous, the change in household income by income class is revealed in the SAM inverse. This information is not directly available from the input-output IMPLAN models. To construct regional input-output models from the regional SAM the user will need to extract regional use and regional make matrices from the regional SAM and undertake the necessary matrix algebra (Miller and Blair).

Model Closure

A wide range of model closures is available for the regional cge model. Alternative labor market behaviors range from a perfectly inelastic labor supply curve to a perfectly elastic labor supply curve to a Harris-Todaro dual labor market. Capital market behavior ranges from capital fixed by sector, to capital mobile by sectors but fixed at the region, to an upward sloping supply curve for regional capital. The foreign exchange rate can be assumed to be flexible to maintain fixity of current account balance or the foreign exchange rate can be assumed fixed with the current account balance changing in response to rest of the world imports and exports. State and local government revenues can be assumed to drive state and local government expenditures or state and local government expenditures can be treated as fixed. In similar fashion, saving can be assumed to drive regional investment or investment can be assumed to be fixed. . In addition, a number of other saving-investment closure are available.

Data and Base Year

The data year for the Current model is 2007. Models for the year 2006 or earlier years require a slight modification of the GAMS code to accommodate the earlier IMPLAN sectoring scheme. This code is available upon request.

Model Structure and Parameters

The model that is constructed is a generic regional computable general equilibrium economic model in which the behavior of producers, consumers, and other economic agents is consistent with neoclassical economic theory in supply and demand functions where behavior is represented by elasticities and other model parameters. The behavioral equations in the model are largely constant-elasticity in nature. Given the structural equations model parameter are generated from information contained in the regional SAM. Elasticities that appear in the various behavioral equations are not parameterized from the regional SAM and should be assigned by the user on the basis of values drawn from the relevant economic literature or upon the nature of the problem being investigated. Very large or very small elasticities may result in a model for which the GAMS solver is unable to find a solution.

If the model is used for commercial purposes, none of the individuals involved in developing the model will be held liable for any losses incurred as a result of using the model. Your use of the model is at your own risk.

The model is written in the General Algebraic Modeling System (GAMS) programming language. In order to run the model, you will need to have GAMS version 2.50 or later installed on your computer. You will also need to have the GAMS/PATH solver installed on your computer. GAMS and GAMS/PATH can be purchased from the GAMS Development Corporation.

 

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