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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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File URL: http://www.sciencedirect.com/science/article/pii/S0264999310001082
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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. 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, Monash University, Centre of Policy Studies/IMPACT Centre.

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