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Linking CGE and microsimulation models: a comparison of different approaches

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  • Giulia Colombo

    ()
    (Department of Economic and Social Science - Catholic University of Milan and SiNSYS NV/SA)

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    Abstract

    In the literature that studies income inequality and poverty, a recent development has been the development of models that link together a macroeconomic model (usually a Computable General Equilibrium (CGE) model) and a microsimulation model. Linking the two types of model allows the modeller to take into account full agents? heterogeneity, whilst at the same time considering the general equilibrium effects of a proposed policy reform. In this paper, I first review in detail three approaches to building linked CGE-microsimulation models: one in accordance with the fully integrated approach, and two following the layered approach (the so-called Top-Down and Top-Down/Bottom-Up approaches). The principal goal of the paper is to present a considered evaluation of the merits and demerits of these alternative methods currently used to link CGE and microsimulation models. To do so I use all three approaches to model the macro- and micro-economic impacts of a policy shock to an archetypical economy (constructed using fictitious data), and compare the results. This analysis highlights the importance of (i) consistency between the underlying macro- and micro-data; and (ii) the precise mechanisms by which feedback effects are passed between the macro and micro models. I develop this latter point further by detailed analysis of the TD/BU approach outlined by Savard (2003), leading to a proposed refinement in the way that feedback effects from the micro level of analysis are incorporated back into the CGE model.

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    File URL: http://ima.natsem.canberra.edu.au/IJM/V3_1/IJM_20.pdf
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    Bibliographic Info

    Article provided by Interational Microsimulation Association in its journal International Journal of Microsimulation.

    Volume (Year): 3 (2010)
    Issue (Month): 1 ()
    Pages: 72-91

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    Handle: RePEc:ijm:journl:v:3:y:2010:i:1:p:72-91

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    Web page: http://ima.natsem.canberra.edu.au/index.htm

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    1. Denis Cogneau & Anne-Sophie Robilliard, 2004. "Poverty Alleviation Policies in Madagascar: a Micro-Macro Simulation Model," Working Papers DT/2004/11, DIAL (Développement, Institutions et Mondialisation), revised Nov 2004.
    2. Decaluwé, Bernard & Dumont, Jean-Christophe & Savard, Luc, 2000. "Measuring Poverty and Inequality in a Computable General Equilibrium Model," Cahiers de recherche 9926, Université Laval - Département d'économique.
    3. John Creedy & Guyonne Kalb, 2003. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Melbourne Institute Working Paper Series wp2003n16, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    4. Denis Cogneau, 2001. "Formation du revenu, segmentation et discrimination sur le marché du travail d'une ville en développement : Antananarivo fin de siècle," Working Papers DT/2001/18, DIAL (Développement, Institutions et Mondialisation).
    5. Decaluwe, B. & Patry, A. & Savard, L. & Thorbecke, E., 1999. "Poverty Analysis Within a General Equilibrium Framework," Cahiers de recherche 9909, Université Laval - Département d'économique.
    6. John Cockburn, 2002. "Trade Liberalisation and Poverty in Nepal A Computable General Equilibrium Micro Simulation Analysis," Economics Series Working Papers WPS/2002-11, University of Oxford, Department of Economics.
    7. Robilliard, Anne-Sophie & Robinson, Sherman, 1999. "Reconciling household surveys and national accounts data using a cross entropy estimation method:," TMD discussion papers 50, International Food Policy Research Institute (IFPRI).
    8. Maurizio Bussolo & Jann Lay, 2003. "Globalisation and Poverty Changes in Colombia," OECD Development Centre Working Papers 226, OECD Publishing.
    9. Caesar B. Cororaton & John Cockburn, 2005. "Trade Reform and Poverty in the Philippines: a Computable General Equilibrium Microsimulation Analysis," Cahiers de recherche 0513, CIRPEE.
    10. Luc Savard, 2003. "Poverty and Income Distribution in a CGE-Household Micro-Simulation Model: Top-Down/Bottom Up Approach," Cahiers de recherche 0343, CIRPEE.
    11. Robinson, Sherman & Cattaneo, Andrea & El-Said, Moataz, 1998. "Estimating a social accounting matrix using cross entropy methods:," TMD discussion papers 33, International Food Policy Research Institute (IFPRI).
    12. Francisco Ferreira & Julie Litchfield, 2001. "Education or Inflation? The Micro and Macroeconomics of the Brazilian Income Distribution During 1981-1995," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 38(114), pages 209-238.
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    Cited by:
    1. Andrew Feltenstein & Luciana Lopes & Janet Porras Mendoza & Sally Wallace, 2013. "“The Impact of Micro-simulation and CGE modeling on Tax Reform and Tax Advice in Developing Countries”: A Survey of Alternative Approaches and an Application to Pakistan," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1309, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    2. Li, Jinjing & O'Donoghue, Cathal, 2012. "A methodological survey of dynamic microsimulation models," MERIT Working Papers 002, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    3. Jann Lay, 2010. "Sequential macro-micro modelling with behavioural microsimulations," International Journal of Microsimulation, Interational Microsimulation Association, vol. 3(1), pages 24-34.
    4. Maheshwar Rao & Robert Tanton & Yogi Vidyattama, 2013. "‘A Systems Approach to Analyse the Impacts of Water Policy Reform in the Murray-Darling Basin: a conceptual and an analytical framework’," NATSEM Working Paper Series 13/22, University of Canberra, National Centre for Social and Economic Modelling.

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