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GTAP Resource #3887

"International Price Transmission in CGE Models: How to Reconcile Econometric Evidence and Endogenous Model Response?"
by Siddig, Khalid and Harald Grethe

The importance of empirically analyzing the transmission to and impacts of international prices on domestic markets is growing, particularly since the 2006 – 2008 food price hike. However, the field is dominated by econometric time-series analysis (PTA) and rather disconnected from analyses based on simulation models such as computable general equilibrium (CGE) models. The missing reconciliation among these tools could be due to: PTA often being concerned with high frequency data and short term adjustment processes, which does not reconcile well with the annual data of CGE analyses; typically little overlap between research teams in econometric time series analysis and those in CGE modeling; and the endogeneity of price transmission in CGE models. Due to this endogeneity, the calibration of CGE models to empirically observed price transmission is not straightforward, as an infinite combination of model parameters and specifications allows for reaching a certain level of price transmission. This paper aims to address the question of how a certain degree of price transmission from the international to the domestic market, which may be determined empirically such as based on a vector error correction model, can be met in a single country CGE model. We examine and validate seven hypothetical determinants including structural characteristics of the model, the parameterization of behavioral functions, and properties of the sectors concerned. The findings of this paper support controlling the pass-through of prices from the international to the domestic market in CGE models.

Resource Details (Export Citation) GTAP Keywords
Category: 2012 Conference Paper
Status: Published
By/In: Presented at the 15th Annual Conference on Global Economic Analysis, Geneva, Switzerland
Date: 2012
Created: Grethe, H. (4/30/2012)
Updated: Grethe, H. (5/16/2012)
Visits: 1,603
- Agricultural policies
- Calibration and parameter estimation
- Middle East

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