International Trade, Capital Flows and Sectoral Analysis: Formulation and Solution of Intertemporal Equilibrium Models

Abstract

This paper examines international trade and capital flows within a five-region intertemporal equilibrium model. The paper reports on the use of sequential joint maximization to solve a specific class of AGE (applied general equilibrium) problems — those in which each agent may be characterized by a homothetic utility function.

The paper also considers issues related to the formulation of intertemporal AGE models that are focussed upon an individual sector. The balance of the economy is then described in terms of a numéraire good. With either static or recursive models, this form of aggregation seems appropriate. However, with intertemporal AGE models (that is, with dated commodities), difficulties are encountered unless the rate of return is identical in all regions. We explore the implications in terms of international trade and capital flows.

For presentation at Conference on Computational Economics, Austin, May 1992. This research was funded by the Electric Power Research Institute (EPRI). The views presented here are solely those of the individual authors, and do not necessarily represent the views of EPRI or its members. For helpful suggestions on earlier drafts, we are indebted to Lars Mathiesen and John Rowse