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Illustrative GEMPACK Computations in a General Equilibrium Model with Melitz Sectors

  • Peter B. Dixon
  • Michael Jerie
  • Maureen T. Rimmer
Chapter
Part of the Advances in Applied General Equilibrium Modeling book series (AAGEM)

Abstract

One way to learn about the theoretical properties of a model is to construct and apply a simple numerical version. This is also a good preparation for creating policy-relevant models. Here we describe MelitzGE, a simplified Melitz general equilibrium model implemented with stylized data. Using MelitzGE we start by conducting simulations for which the results can be known a priori. Test simulations such as these check the coding of models. They can also expose theoretical properties. For example, a MelitzGE test simulation of the effects of a uniform 1% world-wide increase in employment shows a uniform increase in consumption of more than 1%, determined by the substitution elasticity σ. Sorting out why this is so helps us understand how love of variety and scale operate in Melitz. Next we conduct tariff simulations. Using the Balistreri-Rutherford decomposition discussed in Chap.  5, we find that Melitz love-of-variety and productivity effects tend to cancel out leaving welfare determined by phenomena familiar from Armington: terms-of-trade and efficiency effects. Recognition that these effects depend on tariff levels and trade-flow sensitivity to tariff changes leads to an investigation of the equivalence between Armington and Melitz models when calibrated to produce similar trade sensitivities. The GEMPACK code for our computations is in an appendix. As illustrated in this chapter and the next, GEMPACK is ideal software for Melitz-style CGE modelling. Nevertheless, readers will not need to be familiar with GEMPACK or follow the GEMPACK code to understand the chapter.

Keywords

Test simulations Melitz in GEMPACK Welfare decomposition Armington-Melitz equivalence 

Supplementary material

332135_1_En_6_MOESM1_ESM.zip (81.3 mb)
Supplementary material 1 (ZIP 33832 kb)

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Copyright information

© Springer Nature Singapore Pte Ltd. 2018

Authors and Affiliations

  • Peter B. Dixon
    • 1
  • Michael Jerie
    • 1
  • Maureen T. Rimmer
    • 2
  1. 1.Centre of Policy StudiesVictoria UniversityMelbourneAustralia
  2. 2.Centre of Policy StudiesVictoria UniversityMelbourneAustralia

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