Melbourne Institute Working Paper Series Database (1984 - 2010)

Melbourne Institute Working Paper No. 02/2009

Sequential Linking of Computable General Equilibrium and Microsimulation Models

by

Nicolas Hrault

Date: February 2009

Abstract: Several approaches have recently been developed to combine a computable general equilibrium model (CGE) and a microsimulation (MS) model. These so-called CGE-MS models enjoy a growing interest because they build a bridge between macro- and microeconomic analyses. This paper focuses on the top-down approach. In this context, the CGE model is used to simulate the changes at the macroeconomic level after the policy change, which are then passed on to the MS model. The aim of this paper is to compare the top-down approach introduced by Robilliard et al. (2001) based on a behavioural MS model with an alternative and simpler approach making use of a non-behavioural MS model in combination with a reweighting procedure. Both approaches are presented and then applied to the case of trade liberalisation in South Africa. The reweighting approach introduces a small bias in the results, however without modifying the main conclusions. Given its relative simplicity compared to the behavioural approach, the reweighting approach seems to constitute a good alternative when data or time constraints do not allow the use of the behavioural approach and when the interest does not lie in the production of individual-level transition matrices.

 

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