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