Edited by Thijs ten Raa
Chapter 10: General equilibrium analysis
The supply-use system of production is extended to a social accounting matrix by and enriched with alternative model specifications in the blocks of final demand, production, and factor markets. Domestic, import and export prices are accommodated and different composite prices face industries, households, government and the Rest of the World, accounting for taxes and other margins. These price equations second the quantity equations. Alternative macroeconomic closure rules enable the determination of equilibrium values of output and prices, either by Leontief inversion or iteration. The demand function for private consumption nests different forms, including Cobb-Douglas, translog and the Almost Ideal Demand System. Production and trade are also generalized, using constant elasticity of substitution or translog functions, including for labor and capital demand and supply. Household consumption can be extended to a dynamic framework, to explain savings. The models, from static input-output to full-fledged computable general equilibrium are presented explicitly, in a unified manner.
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