Wisconsin National Data Consortium

Overview

Over the past thirty years international trade economists have developed algebraic model formulations which have enabled policy analysts to characterize key relationships between economic parameters and economic variables which characterize the impact of policy shocks (quotas, tariffs and productivity shocks) on domestic factor prices and welfare. Early analyses remained limited in value for policy evaluation: the analysis was local, it provided only qualitative results, it was limited to very small models, and strictly interior solutions had to be assumed. The purpose of the introductory lectures on the first day of the course is to provide a primer for those wishing to do or teach general-equilibrium counterfactuals on computable general-equilibrium (CGE) or structural econometric models.

James Markusen will show how the tools from early local comparative statics analyses can be generalized via the use of Shepard’s lemma, duality, complementarity and the Karush-Kuhn-Tucker theorem into a global, quantitative analysis of large changes in high-dimension models which also allows for regime changes and corner solutions. Tom Rutherford will then show how the resulting non-linear complementarity problem directly translates into a numerical model using GAMS (general algebraic modeling system). The lectures will be completed by concrete examples: comparison of a tax versus a real trade/transactions cost, comparison of a tax versus a quantitative restriction such as a quota or license, formulation of trade policy models in a small open economy, large open economy or multiregional frameworks.