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
1- GTAP/GEMPACK
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:
- Familiarize yourself with basic concepts in economics, especially macroeconomics, trade theory, and computable general equilibrium models.
- Consider taking a GTAP course or training program, either online or in-person, to deepen your understanding of the software and its applications, such as an intro. and advanced GTAP Training offered as part of M&S Research Hub’s GEM program at (https://www.ms-researchhub.com/home/training/gem-training.html)
- Study the GTAP model from the Global Trade Analysis Project website (https://www.gtap.agecon.purdue.edu/default.asp), its structure and assumptions, as well as its various modules and databases.
- Learn how to use the software tool associated with the GTAP model, such as GAMS (General Algebraic Modeling System) or other software that can interface with GTAP data.
- Get hands-on experience by conducting your own simulations using the GTAP model and interpreting the results.
- Read and stay updated with the latest research that utilizes the CGE-GTAP model, to keep up-to-date with new developments and best practices.
2- GAMS
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:
- Familiarize yourself with basic concepts in economics, mathematical programming and optimization. This will help you understand the underlying principles and applications of GAMS.
- Get a basic understanding of the GAMS language syntax and structure by going through the GAMS user manual and tutorials available on the GAMS website (www.gams.com)
- Consider taking a GAMS course or training program, either online or in-person, to deepen your understanding of the software and its applications, such as GAMS Training offered as part of M&S Research Hub’s GEM program at (https://www.ms-researchhub.com/home/training/gem-training.html)
- Start solving simple problems with GAMS and gradually increase the complexity of the models you work with. This will help you understand the capabilities and limitations of the software and how to use it effectively.
- Get hands-on experience by working on projects and case studies using GAMS. This will help you to understand how to use GAMS to solve real-world problems.
- Join online forums and discussion groups to connect with other GAMS users and share knowledge and experience. This will also provide you with opportunities to learn from others and stay updated with the latest developments in the field.
References
Demystifying Modelling Methods for Trade Policy by Roberta Piermartini and Robert Teh (WTO discussion paper No. 10)
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