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1、SIMULATION MODELS 1st Week,INTRODUCTION Master conomie Internationale et Dveloppement Universit Paris Dauphine Dr. Rafael de Arce Professeur Univ. Autnoma de Madrid http:/www.uam.es/rafael.dearce,WHY DO POLICY-MAKERS NEED MODELS? Reference paper: Piermartini, R. and Teh, R. (2005): “Demystifying Mod
2、elling Methods for Trade Policy”. WTO Discussion Papers, num. 10. September, 2005.,Economic models provide a theoretically consistent, rigorous and quantitative way of evaluating different policy analysis. Multiple options, multiple actors. A simulation of the model can confirm that judgment and pro
3、vide estimate of the likely gains Models can alert about effects in inter-related issues But, whats first? “The tail shouldnt wag the dog”,Master conomie Internationale et Dveloppement, Universit Paris Dauphine,WHY DO POLICY-MAKERS NEED MODELS?,WHY DO POLICY-MAKERS NEED MODELS?,EXPONENTIAL GROWTH,La
4、rgeness and wideness Statistical collection (“Big data and Macro/Micro data availability) Increase of Computational power Advances in theoretical analysis,Master conomie Internationale et Dveloppement, Universit Paris Dauphine,Moore Law,“Sylicone chip procesor doubles its capacity in 18 months”,STRE
5、NGTHS,Reflects Inter-dependency of economic variables Computer based models allow us to track all of these interactions Simulation of several scenarios is available Simulations are performed in a transparent hypothesis frame They discipline thinking about how economies actually work,Master conomie I
6、nternationale et Dveloppement, Universit Paris Dauphine,LIMITATIONS,Aggregations can obscure important underlying relationships Data are not always “high quality” All the quantitative models are subject to error Responsiveness of supply and demand to price changes are not necessarily accurate Choice
7、s among scenarios and model specification can imply very different results Technical comprehension is only available for experts,Master conomie Internationale et Dveloppement, Universit Paris Dauphine,CHOICE THE MODEL,COMPARATIVE STATIC AND DYNAMIC ANALYSIS Static: changes in policies and direct tra
8、nsmission to endogenous variables of model Dynamic: final and intermediate process of change PARTIAL OR GENERAL EQUILIBRIUM ANALYSES “Ceteris Paribus” criteria Whole economy linkages,Master conomie Internationale et Dveloppement, Universit Paris Dauphine,Reference paper: Piermartini, R. and Teh, R.
9、(2005): “Demystifying Modelling Methods for Trade Policy”. WTO Discussion Papers, num. 10. September, 2005.,Whole economy linkages,KIND OF THECNICAL STRATEGIES FREQUENTLY USED IN INTERNATIONAL SIMULATIONS,Traditional Econometric Multiequational Models Optimization Models Gravity Models Panel Data Mo
10、dels Leontief Based Models (I-O Models) Social Account Matrix Models,Master conomie Internationale et Dveloppement, Universit Paris Dauphine,Exogenous Endogenous Relationship,Optimization: One target function Constraints to be accomplished Linear and non linear available linkages Sometimes, more tha
11、n one solution (local optimum),Master conomie Internationale et Dveloppement, Universit Paris Dauphine,Exogenous Endogenous Relationship,Gravity Models:,Example: Gravity Panel Data Model used in Arce and Mahia (2008): “DETERMINANTS OF BILATERAL IMMIGRATION FLOWS BETWEEN THE EUROPEAN UNION AND SOME M
12、EDITERRANEAN PARTNER COUNTRIES: ALGERIA, EGYPT, MOROCCO, TUNISIA AND TURKEY”. FEMISE 2008:,Master conomie Internationale et Dveloppement, Universit Paris Dauphine,Exogenous Endogenous Relationship: Leontief Based Models (I-O Models) and Computable General Equilibrium (CGM):,Actors Activities Commodi
13、ties Factors Enterprises Households Government Capital Account Rest of the World,Behavioral parameters Elasticity of producers and consumers to price changes Value Added Armington Demand/income,Master conomie Internationale et Dveloppement, Universit Paris Dauphine,SAM Structure,“The most important thing between the screen and the keyboard is the person who is in the middle of them.”,