Peter J Wilcoxen > Computational General Equilibrium

What Is a CGE Model?

There is no rigid definition of a computational general equilibrium model. However, CGE models usually have most or all of the following characteristics. Each characteristic has advantages and disadvantages; click on the corresponding link for a quick summary.

Multiple interacting agents: This distinguishes CGE models from computational macroeconomic models which usually have only one agent. Large CGE models can have dozens or even hundreds of households and firms.
Multiple markets: This is closely related to multiple agent characteristic but is important enough to merit a separate item. A hallmark of CGE models is that production is split up into at least two sectors.
Behavior derived from optimization: CGE models are highly structural. Most or all behavioral equations in a CGE model are derived from optimization. Departures from optimization are the exception rather than the rule.
Decentralized equilibrium: Under construction.
Designed for policy analysis: Under construction.
Selected Readings

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Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 11/29/2003