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A Heuristic Approach to the Estimation of Key Parameters for a Monthly, Recursive, Dynamic CGE Model

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  • Masato Yamazaki

    (Nagoya University)

  • Atsushi Koike

    (Kobe University)

  • Yoshinori Sone

    (Nagoya University)

Abstract

As economic losses brought about by natural disasters mount, assessing the economic impact of a possible future natural disaster is becoming increasingly important. A computable general equilibrium (CGE) model and an input-output (I-O) model are strong candidates for performing such an assessment. Even though a CGE model is more comprehensive and flexible than an I-O model, the CGE approach is often subject to criticism because key parameters are often not appropriately estimated. The purpose of this study is to calibrate two sets of key substitution parameters: the elasticity of substitution between labor and capital services and the elasticity of substitution among like goods of different origins, using a monthly, recursive, dynamic CGE model. For the calibration, this study employs a heuristic method, in which the model’s substitution parameters are adjusted to reproduce actual production losses from the 2011 Great East Japan Earthquake. In addition, we test whether the CGE model can reproduce the actual economic recovery from this earthquake. Overall, we find that our model does reproduce the disaster’s economic dynamics of recovery, as well as its short-term economic impact.

Suggested Citation

  • Masato Yamazaki & Atsushi Koike & Yoshinori Sone, 2018. "A Heuristic Approach to the Estimation of Key Parameters for a Monthly, Recursive, Dynamic CGE Model," Economics of Disasters and Climate Change, Springer, vol. 2(3), pages 283-301, October.
    • Handle: RePEc:spr:ediscc:v:2:y:2018:i:3:d:10.1007_s41885-018-0027-4
    DOI: 10.1007/s41885-018-0027-4
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    Cited by:

    1. Botero García, Jesús Alonso & Hurtado, Alvaro & Montañez Herrera, Diego Fernando, 2021. "The productivity of the agricultural sector and its effects on economic growth: a CGE analysis," Conference papers 333318, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Dabo Guan & Daoping Wang & Stephane Hallegatte & Steven J. Davis & Jingwen Huo & Shuping Li & Yangchun Bai & Tianyang Lei & Qianyu Xue & D’Maris Coffman & Danyang Cheng & Peipei Chen & Xi Liang & Bing, 2020. "Global supply-chain effects of COVID-19 control measures," Nature Human Behaviour, Nature, vol. 4(6), pages 577-587, June.
    3. Haoran Zhang & Limin Jiao & Cai Li & Zhongci Deng & Zhen Wang & Qiqi Jia & Xihong Lian & Yaolin Liu & Yuanchao Hu, 2024. "Global environmental impacts of food system from regional shock: Russia-Ukraine war as an example," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-13, December.

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    More about this item

    Keywords

    Computable general equilibrium model; Elasticity of substitution; Natural disaster; Economic loss;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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