GTAP Resources: Resource Display
| GTAP Resource #7201 |
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"Exploring Aggregation Bias in General Equilibrium Models: A Comparison of Elasticity Aggregation Formulas Using Real-World Data" by Kim, Yong-Gun Abstract The elasticity of substitution between inputs for an aggregated sector may not align with the simple weighted average of disaggregated sectors. The discrepancy may result in an aggregation bias in computable general equilibrium analyses. In this study, we explore this potential gap between the simplified weighted average of disaggregate elasticities and the elasticity derived mathematically within a general equilibrium framework. We also investigate the impacts of alternative aggregation formulas for elasticities, using the real-world economic dataset (GTAP 10 DB), to provide insight into the aggregation bias of CGE model simulations. In a simplified general equilibrium model with a two-sector, two-factor economy, we found significant differences between aggregated elasticities calculated using simplified weighted averages and those derived from exact general equilibrium methods—sometimes the discrepancy was more than threefold. However, more practical simulations using the GTAP Database showed that the variances in elasticities and the impacts of exogenous shocks using the two different elasticity formulas were not significantly different. This may be due to the specific economic structures currently reflected in the GTAP Database. While this finding suggests that aggregation bias from using non-exact elasticity formulas may not always be a critical issue, it does not rule out the possibility of significant deviations in equilibrium impacts under different conditions. Further research is necessary to confirm the utility of the simplified average formula and to determine the need for more sophisticated aggregation formulas. |
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- GTAP Data Base and extensions - Advances in quantitative methods - Calibration and parameter estimation - Model validation and sensitivity analysis - Software and modeling tools - Not Applicable |
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Public Access  Paper (522.3 KB) Replicated: 0 time(s)Restricted Access No documents have been attached. Special Instructions No instructions have been specified. |
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Last Modified: 9/15/2023 2:05:45 PM
