Economic Contagion Under Uncertainty: Cge With A Monte Carlo Experiment

Economic contagion is increasingly felt as economic interdependence deepens in today’s economy. This study quantitatively investigates how economic shocks of a certain country influence a different country. Usually, a positive shock has a positive influence, and a negative shock has a negative influence. For instance, the monetary crisis of Europe affected the Asian economy as well as the economy of Europe itself. The Chinese economy, which recently accomplished the most remarkable economic growth in the Asian region, has also declined in rates of growth, and has become a risk factor for the global economy. The downturn of the economy in regions with economic power may have a negative influence on the economy of other countries. Under such circumstances, this study quantitatively analyzes the economic shock influence of a certain country to other countries, at the same time there is a possibility of influence to the opposite direction supposing the economic shock occurs under uncertainty. The model employed in the study uses the general algebraic modeling system (GAMS), it uses the global trade analysis project (GTAP) database, which is compiled as a computable general equilibrium (CGE) model using multiple countries’ data. Moreover, this database is constantly updated to a recent year to feature more realistic knowledge. Furthermore, this study uses the Monte Carlo experiment to model uncertainty. This is realizable by adding the random number of a normal distribution to the exogenous variables of the model.