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An Econometric Approach to General Equilibrium Modeling

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  • Jorgenson, Dale W.
  • Jin, Hui
  • Slesnick, Daniel T.
  • Wilcoxen, Peter J.

Abstract

The first objective of this chapter is to present a new approach to econometric modeling of producer behavior. Our key contribution is to represent the rate and biases of technical change by unobservable or latent variables. We also divide the rate of technical change between components that are induced by changes in prices and those that are autonomous and not affected by prices. In our dataset, production is disaggregated into 35 separate commodities produced by one or more of the 35 industries making up the US economy. Our second objective is to present a new econometric model of aggregate consumer behavior. The model allocates full wealth among time periods for households distinguished by demographic characteristics, and determines the within-period demands for leisure, consumer goods and services. An important feature of our approach is the development of a closed-form representation of aggregate demand and labor supply that accounts for the heterogeneity in household behavior that is observed in micro-level data. Our model of producer behavior is the supply side of general equilibrium models of the US. The aggregate demand functions are important components of the demand side. These general equilibrium models are used to analyze the consequences of a broad spectrum of public policies. These applications are discussed in more detail in Chapter 8 of this Handbook. The third objective of the chapter is to demonstrate an important benefit of the econometric approach to parameterization. The parameter covariances obtained in the course of estimation can be used to construct confidence intervals for endogenous variables in general equilibrium models. Confidence intervals characterize the precision of modeling results more rigorously and systematically than traditional sensitivity analysis.

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Bibliographic Info

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This chapter was published in:

  • Peter B. Dixon & Dale Jorgenson (ed.), 2012. "Handbook of Computable General Equilibrium Modeling," Handbook of Computable General Equilibrium Modeling, Elsevier, Elsevier, edition 1, volume 1, number 1.
    This item is provided by Elsevier in its series Handbook of Computable General Equilibrium Modeling with number v:1:y:2013:i:c:p:1133-1212.

    Handle: RePEc:eee:hacchp:v:1:y:2013:i:c:p:1133-1212

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    Web page: http://store.elsevier.com/Handbook-of-Computable-General-Equilibrium-Modeling/isbn-9780444536341/

    Related research

    Keywords: Rate and bias of technical change; latent variables; Kalman filter; aggregate demand; labor supply; confidence intervals; outcome variables;

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    References

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    13. William Barnett & Apostolos Serletis, 2009. "Measuring Consumer Preferences and Estimating Demand Systems," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200901, University of Kansas, Department of Economics, revised Jan 2009.
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    16. Jorgenson, Dale W. & Slesnick, Daniel T., 2008. "Consumption and labor supply," Journal of Econometrics, Elsevier, Elsevier, vol. 147(2), pages 326-335, December.
    17. Orazio P. Attanasio & Guglielmo Weber, 1994. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," NBER Working Papers 4795, National Bureau of Economic Research, Inc.
    18. Kim, Chang-Jin, 2006. "Time-varying parameter models with endogenous regressors," Economics Letters, Elsevier, Elsevier, vol. 91(1), pages 21-26, April.
    19. Dale W. Jorgenson & Mun S. Ho & Kevin J. Stiroh, 2005. "Productivity, Volume 3: Information Technology and the American Growth Resurgence," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 3, number 0262101114, December.
    20. Binswanger, Hans P, 1974. "The Measurement of Technical Change Biases with Many Factors of Production," American Economic Review, American Economic Association, American Economic Association, vol. 64(6), pages 964-76, December.
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    26. Slesnick,Daniel T., 2001. "Consumption and Social Welfare," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521497206.
    27. Kim, Chang-Jin & Nelson, Charles R., 2006. "Estimation of a forward-looking monetary policy rule: A time-varying parameter model using ex post data," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(8), pages 1949-1966, November.
    28. Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2003. "Chapter 11 Technological change and the environment," Handbook of Environmental Economics, Elsevier, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 11, pages 461-516 Elsevier.
    29. Feng, Guohua & Serletis, Apostolos, 2008. "Productivity trends in U.S. manufacturing: Evidence from the NQ and AIM cost functions," Journal of Econometrics, Elsevier, Elsevier, vol. 142(1), pages 281-311, January.
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