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Assessing Modelling Approaches to the Distributional Effects of Macroeconomic Policy

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  • Egor Kraev
  • Bishop Akolgo
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    Abstract

    This article outlines a set of desirable properties of an adequate model for assessing distributional impacts of macroeconomic policy packages, and uses these as criteria to evaluate four model types commonly used for such assessments, namely, fixed ratio, econometric, CGE and microsimulation models. The desirable properties fall into five broad groups: being able to represent policy levels used in the policy packages, allowing for both price- and quantity-clearing markets, integrating financial stocks, representing short-term dynamics, and providing measures of confidence in a model's output. Of the model types reviewed, CGE models perform the best on most criteria, in spite of their substantial flaws of non-verifiability and lack of short-term analysis. Copyright Overseas Development Institute, 2005.

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    Bibliographic Info

    Article provided by Overseas Development Institute in its journal Development Policy Review.

    Volume (Year): 23 (2005)
    Issue (Month): 3 (05)
    Pages: 299-312

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    Handle: RePEc:bla:devpol:v:23:y:2005:i:3:p:299-312

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    1. Decaluwe, Bernard & Martens, Andre, 1988. "CGE modeling and developing economies: A concise empirical survey of 73 applications to 26 countries," Journal of Policy Modeling, Elsevier, vol. 10(4), pages 529-568.
    2. J. J. Polak, 1957. "Monetary Analysis of Income Formation and Payments Problems," IMF Staff Papers, Palgrave Macmillan, vol. 6(1), pages 1-50, November.
    3. Kanbur Ravi, 2001. "Economic Policy, Distribution and Poverty: The Nature of Disagreements," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 7(2), pages 1-26, April.
    4. Easterly, William, 1997. "The ghost of financing gap : how the Harrod-Domar growth model still haunts development economics," Policy Research Working Paper Series 1807, The World Bank.
    5. Feltenstein, Andrew & Shah, Anwar, 1992. "General equilibrium effects of investment incentives in Mexico," Policy Research Working Paper Series 927, The World Bank.
    6. Godley, Wynne, 1999. "Money and Credit in a Keynesian Model of Income Determination," Cambridge Journal of Economics, Oxford University Press, vol. 23(4), pages 393-411, July.
    7. Kraev, Egor, 2002. "Stocks, flows and complementarity: formalizing a basic insight of ecological economics," Ecological Economics, Elsevier, vol. 43(2-3), pages 277-286, December.
    8. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
    9. Khan, Mohsin S. & Montiel, Peter & Haque, Nadeem U., 1990. "Adjustment with growth : Relating the analytical approaches of the IMF and the World Bank," Journal of Development Economics, Elsevier, vol. 32(1), pages 155-179, January.
    10. Devaragan, Shantayanan & Lewis, Jeffrey D. & Robinson, Sherman, 1990. "Policy lessons from trade-focused, two-sector models," Journal of Policy Modeling, Elsevier, vol. 12(4), pages 625-657.
    11. Mohsin S. Khan, 1990. "The Macroeconomic Effects of Fund-Supported Adjustment Programs," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 195-231, June.
    12. Devarajan, Shantayanan & Go, Delfin S., 1998. "The Simplest Dynamic General-Equilibrium Model of an Open Economy," Journal of Policy Modeling, Elsevier, vol. 20(6), pages 677-714, December.
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    Cited by:
    1. Essama-Nssah, B., 2005. "The poverty and distributional impact of macroeconomic shocks and policies : a review of modeling approaches," Policy Research Working Paper Series 3682, The World Bank.
    2. Aline Coudouel & Stefano Paternostro, 2006. "Analyzing the Distributional Impact of Reforms : A Practitioner’s Guide to Pension, Health, Labor Markets, Public Sector Downsizing, Taxation, Decentralization, and Macroeconomic Modeling, Volume 2," World Bank Publications, The World Bank, number 7041, October.
    3. Vaqar Ahmed & Cathal O'Donoghue, 2009. "External Shocks in a Small Open Economy: A CGE-Microsimulation Analysis," Working Papers 0142, National University of Ireland Galway, Department of Economics, revised 2009.
    4. Behrman, Jere R., 2009. "Analyzing the Distributional Impact of Reforms, Volume Two: A Practitioner's Guide to Pension, Health, Labor Market, Public Sector Downsizing, Taxation, Decentralization, and Macroeconomic Modeling. A," Journal of Pension Economics and Finance, Cambridge University Press, vol. 8(03), pages 396-397, July.

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