CGEModellen

CGEmodellen, or computable general equilibrium models, are a class of economic models used to analyze how an economy responds to policy changes, external shocks, or technological shifts. They combine a general equilibrium framework with numerical computation to produce simulated outcomes for prices, production, trade, and welfare across sectors and agents.

A CGE model represents an economy as a system of interlinked markets for goods, factors of production and services. A social accounting matrix or a detailed input–output structure provides the baseline data, together with production technologies (often nested production functions such as Leontief, Cobb-Douglas or CES), and behavioral assumptions for households, firms and government. Prices adjust so that supply equals demand in all markets, yielding a Walrasian equilibrium in the simulated period.

Models can be static, capturing a one-time change, or dynamic, including time paths and capital accumulation. They may be single-country or multi-country (regional or global CGE), and can incorporate trade linkages, international policy instruments, taxes, subsidies, environmental policies, or technology shocks. Common features include elasticities that describe substitution among inputs, and closures that determine savings, investment, and government saving behavior.

Typical applications involve policy impact assessment: tax reform, environmental regulation and carbon pricing, trade liberalization, energy and resource policy, or welfare and distributional analysis. Strengths of CGEmodellen include economy-wide consistency, the ability to trace indirect effects and interactions, and the capability to compare alternative policy scenarios. Limitations arise from reliance on specific functional forms and elasticities, extensive data requirements, assumptions about market closure, and sensitivity to model structure and calibration.