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GTAP Resource #2954

"Validating Energy-Oriented CGE Models"
by Beckman, Jayson and Thomas Hertel


Abstract
Although CGE models have received heavy usage, they are often criticized as being insufficiently validated. Key parameters are often not econometrically estimated, and the performance of the model as a whole is rarely checked against historical outcomes. As a consequence, questions frequently arise as to how much faith one can put in CGE results. In this paper, we employ a novel approach to the validation of a widely utilized global CGE model – GTAP-E. By comparing the variance of model generated petroleum price distributions -- driven by historical demand and supply shocks to the model-- with observed five-year moving average price distributions, we conclude that energy demand in GTAP-E is far too price-elastic over this time frame. After incorporating the latest econometric estimates of energy demand and supply elasticities, we revisit the validation question and find the model to perform more satisfactorily. As a further check, we compare a deterministic global general equilibrium simulation, based on historical realizations over the 2001-2006 period during which petroleum prices rose sharply, along with growing global energy demands. As anticipated by the stochastic simulations, the revised model parameters perform much better than the original GTAP-E parameters in this global, general equilibrium context.


Resource Details (Export Citation) GTAP Keywords
Category: Working Paper
Status: Published
By/In: GTAP Working Paper No. 54
Date: 2010
Version: 3
Created: Alexander, M. (2/23/2009)
Updated: Alexander, M. (3/19/2010)
Visits: 22,373
- Calibration and parameter estimation


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