Using Macro Indicators for Consistent CGE Baseline Construction

Many policy targets are set in such a way that their implementation will not take place immediately but rather at some time in the future. In this case, quantitative policy analysts are confronted with the problem of compiling a baseline scenario that reflects the most likely state of the economy in a particular year. The methods employed to derive baseline scenarios are heterogeneous and range from the usage of the most recent observations to complete and consistent estimation procedures. In the case of computable general equilibrium (CGE) analyses, the Scenar2020 project (European Commission 2006a) is one example of how projections of macro-economic indicators (exogenous drivers) are used to construct the baseline as a model scenario. Starting from a calibrated version, exogenous variables, such as regional or global policies, population growth, consumer preferences and productivity, are modified until macro-economic projections are met. However, numerous projections refer to economic indicators which are endogenous variables within the CGE framework, such as gross domestic product (GDP), market prices, or produced quantities.

FERRARI Emanuele;  MUELLER Marc;  GONZALEZ MELLADO Aida Araceli; 

2011-07-28

Center for Global Trade Analysis of Purdue University

JRC57508