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Specifying parameters in computable general equilibrium models using optimal fingerprint detection methods

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  • Koesler, Simon

Abstract

The specification of parameters is a crucial task in the development of economic models. The objective of this paper is to improve the standard parameter specification of computable general equilibrium (CGE) models. On that account, we illustrate how Optimal Fingerprint Detection Methods (OFDM) can be used to identify appropriate values for various parameters. This method originates from climate science and combines a simple model validation exercise with a structured sensitivity analysis. The new approach has three main benefits: 1) It uses a structured optimisation procedure and does not revert to ad-hoc model improvements. 2) It allows to account for uncertainty in parameter estimates by using information on the distribution of parameter estimates from the literature. 3) It can be applied for the specification of a range of parameters required in CGE models, for example for the definition of elasticities or productivity growth rates.

Suggested Citation

  • Koesler, Simon, 2014. "Specifying parameters in computable general equilibrium models using optimal fingerprint detection methods," ZEW Discussion Papers 14-092, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:14092
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    More about this item

    Keywords

    CGE modelling; sensitivity analysis; model validation parameter specification; substitution elasticities;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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