Computational General Equilibrium > What Is a CGE Model?

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.
Not subject to the Lucas critique because coefficients appearing in behavioral equations are structural.
The functional forms used in CGE models are often inflexible and impose many econometric restrictions; as a result, the equations often fit the data poorly and have large residuals.
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Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 11/29/2003