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Computable Models of General Equilibrium (CGE)

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  • Olga Kiuila

Abstract

The paper presents rarely used in Poland research method which is the computable model of general equilibrium. In distinction from the econometric models, where we assume that the investigated segment of reality is isolated from the rest of economy, and CGE models of the markets are connected with each other by the supply-demand mechanism like in a real economy. Such models are particularly concentrated on the optimization of prosperity which is directly taken into consideration through the assumption about the rational behaviour of economic subjects. The approach of general equilibrium does not imply the conviction that the real world passes from one equilibrium to another. It serves as a tool for studying situations more real in reality, that is, the imbalance of the markets. The paper presents both the strong and weak sides of this tool and explains its main conception. For a long time in comprised exclusively a theoretical tool and only in the sixties for the first time it was used in empirical analyzes. A particular role in such an analysis is played by the way of noting the relationship between the variables since CGE models use a large number of variables. The model parameters are evaluated by means of calibration which significantly deviates from the estimation.

Suggested Citation

  • Olga Kiuila, 2001. "Computable Models of General Equilibrium (CGE)," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 4.
    • Handle: RePEc:eko:ekoeko:4_109
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    File URL: http://ekonomia.wne.uw.edu.pl/ekonomia/getFile/432
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