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How to avoid strange results in nonlinear dynamic general equilibrium modeling

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  • Kiuila, Olga

Abstract

Economic modeling, like computable general equilibrium modeling, allows to identify markets interactions and to simulate economic behavior. The lack of formal tests to validate such models implies that seemingly good structure of a model may contain flaws that lead to unreasonable results. This paper identifies the key elements of intertemporal general equilibrium modeling omitted in the literature and provides guidance to policy modelers. Even a well designed model will not converge to a steady state if the data do not fulfill several requirements. Simulation results can be very much biased even if the model is properly calibrated. Applying several computable general equilibrium models to a single database allow us to explain and to solve selected issues. The lack of the tests to validate such models should not be a pass for unreasonable results. The paper helps to understand the source of selected "strange" results in the literature.

Suggested Citation

  • Kiuila, Olga, 2019. "How to avoid strange results in nonlinear dynamic general equilibrium modeling," Conference papers 333051, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:333051
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    References listed on IDEAS

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    1. Jan Hagemejer & Zbigniew Żółkiewski, 2013. "Short-run impact of the implementation of EU climate and energy package for Poland: computable general equilibrium model simulations," Bank i Kredyt, Narodowy Bank Polski, vol. 44(3), pages 237-260.
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    3. Costantini, Valeria & D'Amato, Alessio & Martini, Chiara & Tommasino, Maria Cristina & Valentini, Edilio & Zoli, Mariangela, 2013. "Taxing international emissions trading," Energy Economics, Elsevier, vol. 40(C), pages 609-621.
    4. Kiuila, Olga & Sleszynski, Jerzy, 2003. "Expected effects of the ecological tax reform for the Polish economy," Ecological Economics, Elsevier, vol. 46(1), pages 103-120, August.
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