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You can't have a CGE recession without excess capacity

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Author Info

  • Dixon, Peter B.
  • Rimmer, Maureen T.

Abstract

Simulations with dynamic, single country, CGE models typically imply that reductions in domestic demand, e.g. a cut in investment, generate increases in exports and reductions in imports facilitated by real depreciation. However, currently in the U.S. a large reduction in investment is occurring simultaneously with a contraction in exports and little movement in the real exchange rate. We show that to describe this situation it is necessary to drop the standard CGE assumption that capital is always fully employed in every industry. After introducing an excess capacity specification, we simulate the U.S. recession with and without the Obama stimulus package.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 1 ()
Pages: 602-613

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:1:p:602-613

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: U.S. recession; CGE modelling; Excess capacity; Sticky rents; Mark-up pricing;

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Cited by:
  1. Gordon Menzies & Ron Bird & Peter B. Dixon & Maureen T. Rimmer, 2011. "Asset Price Regulators, Unite: You have the Macroeconomy to Win and the Microeconomic Losses are Small," The Economic Record, The Economic Society of Australia, vol. 87(278), pages 449-464, 09.
  2. Peter B. Dixon & Maureen T. Rimmer, 2011. "Doubling U.S. Exports under the President's National Export Initiative: Is it realistic? Is it desirable?," Centre of Policy Studies/IMPACT Centre Working Papers g-220, Victoria University, Centre of Policy Studies/IMPACT Centre.
  3. Dixon, Peter B. & Koopman, Robert B. & Rimmer, Maureen T., 2013. "The MONASH Style of Computable General Equilibrium Modeling: A Framework for Practical Policy Analysis," Handbook of Computable General Equilibrium Modeling, Elsevier.

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