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GTAP Resources: Frequently Asked Question Details

Subject: Chapter 5

Question: In Chapter 5 (Aggregation and Computation of Equilibrium Elasticities) of the GTAP-Book it is told that the matrix of the general equilibrium, own-price elasticities of demand is "qualitatively symmetric". Looking at table 5A (which this statement refers

Answer: The qualitative properties of this matrix are as follows:

1. All own-price elasticities of demand are negative.

2. Off-diagonal elasticities (i.e. cross-price elasticities) are of both signs -- i.e. both substitutes and complements.

These elements are also sign-symmetric. For example, when the market price of US food rises by 1%, the GE demand for EU manufactures (under the standard GE closure) falls. Symmetry is evident in the fact that a rise in the market price of EU manufactures elicits a drop in the GE demand for US food products. (The chapter contains extensive discussion of the reasons for this result, along with a contrasting set of PE elasticites.)

I find these equilibrium elasticities to be a great way of summarizing the aggregate, local properties of the model. They can also be decomposed into their component parts. If, for example, you modify the model structure, parameters and/or closure, it may be difficult to discern the combined impact of these changes.

The equilibrium elasticities offer a handy vehicle for doing so. An option for computing GE elasticities has been built into the new version of RunGTAP which we are now testing. We hope they will be more widely used in the future.

Source: Preparatory Course

Date Added: 9/27/2000