GTAP Resources: Frequently Asked Question Details
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GTAP mimic a change
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Question: |
Can anyone provide me with advice on how to make GTAP mimic a change in exchange rates? For example how would you impose a 10% depreciation of the Canadian dollar against all other currencies?
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Answer: |
1. GTAP, like most other CGE models, is a real model with no money. Therefore there is no nominal exchange rate which can be directly linked to those observed in the foreign exchange markets. 2. However, GTAP does have a mechanism for restoring external balance after a shock. In particular, the return to primary factors in each region will adjust, either:
You can see that the relative price of primary factors in the USA rose to restore external balance. This is because, with savings and investment largely unaffected, the increased demand for USA exports creates a disequilibrium -- provided imports are also unchanged. To restore equilibrium we require a real appreciation of primary factor prices in USA. This is very effective in restoring external balance, since it works to reduce exports of other products (by raising their price) and it also works to increase imports of competing goods as domestic prices rise. Of course, the opposite must occur in the EU, where the increase in imports has created an external imbalance at initial levels of exports, savings and investment. |
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Date Added: |
9/27/2000
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Created: Bacou, M. (9/27/2000)
Updated: (9/29/2000)
Updated: (9/29/2000)
Last Modified: 1/31/2020 12:41:51 PM