The Standard CGE Model

Abstract

The ‘simple CGE model’ presented in Chapter 2 is equipped with only the essential features of a very basic macroeconomic model, and thus it cannot be used for empirical analyses. Here, we extend the model by incorporating the following four features. First, we introduce intermediate inputs into the production process. Second, we introduce a government into the model, where its consumption, and direct and indirect taxes revenues including import tariffs, are considered. Third, we also introduce investment and savings. Finally, we extend the model to an open economy model, where international trade is considered. We call this model the ‘standard CGE model’, whose social accounting matrix (SAM) was previously shown in Table 4.2 in Chapter 4.¹