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GTAP Resource #4508

"Estimating Behavioral Parameters and Shifts in Economic Structure in CGE Models Using an Information-Theoretic Cross-Entropy Estimation Approach"
by Robinson, Sherman


Abstract
CGE models are often criticized for weak empirical estimation of the parameters and for preserving static economic structures in long-term simulations. The problem is associated with the lack of reliable time-series data in developing countries to support standard econometric estimation of parameters and shifts in structure. In particular, we have lacked a times series of social accounting matrices (SAMs) and their associated prices and quantities that provide the information base for these models. There are examples of econometric estimation of parts of the CGE model where some time series data are available—see Jorgenson and Yun (2013) and other work by Jorgenson and various coauthors.
This paper uses an information theoretic cross-entropy estimation approach in an environment of scarce data to estimate behavioral parameters in a CGE model and also to estimate how various functions in the model shift over time to generate historically observed changes in economic structure. With noisy and limited observations common to developing countries, the unknown parameters of a CGE model cannot generally be observed and measured directly. In systems and information theory, this is described as a stochastic inverse problem: how to use available “information” to recover these unknown and uncontrolled components. Robust solution methods consistent with the underlying ill-posed noisy information recovery problem have been developed under Bayesian inference and decision theory (see, for example, Golan, Judge and Miller 1996, and Judge, and Mittelhammer 2012). In CGE model estimation, Arndt, Robinson and Tarp (2002) used the cross entropy estimation method from information theory to estimate the trade substitution elasticities in a CGE model of Mozambique.
In this paper, we extend and refine the cross entropy estimation method to account for different levels of noise and amount of information in a sequential and particular way. We have started with a collection of SAM...


Resource Details (Export Citation) GTAP Keywords
Category: 2014 Conference Paper
Status: Published
By/In: Presented at the 17th Annual Conference on Global Economic Analysis, Dakar, Senegal
Date: 2014
Version: 1
Created: Robinson, S. (4/15/2014)
Updated: Robinson, S. (6/15/2014)
Visits: 1,488
- Calibration and parameter estimation
- Model validation
- Asia (East)


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  File format GTAP Resource 4508-version 3  (1.4 MB)   Replicated: 0 time(s)


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