Skip to main content
SpringerLink
Log in

Modeling intertemporal general equilibrium: An application to Austrian commercial policy

  • Published:
Empirical Economics Aims and scope Submit manuscript

Abstract

We present a multi-sector CGE model featuring forward looking investiment and savings behavior within an intertemporal optimization framework. Thus, the model captures several of the intertemporal effects of commercial policy that have been stressed by recent literature on current account adjustment. We argue that pursuing a simulation approach in addressing these issues is warranted by certain limitations and ambiguities of the analytical literature. In addition to presenting the details of the model structure, the paper addresses calibration issues relating to intertemporal parameters. The model is calibrated to a microconsistent data set for the Austrian economy. Finally, the paper features an application of the model to a simple tariff liberalization scenario.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  1. Armington PS (1969) A theory of demand for products distinguished by place of production. IMF-Staff Papers 16:159–176

    Google Scholar 

  2. Ballard ChL, Fullerton D, Shoven J, Whalley J (1985) A general equilibrium model for tax policy evaluation, Chicago and London: The University of Chicago Press

    Google Scholar 

  3. Blanchard OJ (1985) Debt, deficits, and finite horizons. Journal of Political Economy 21: 223–247

    Google Scholar 

  4. Blanchard OJ, Fischer S (1989) Lectures on macroeconomics, Cambridge/Mass. MIT Press

    Google Scholar 

  5. Bovenberg LA, Goulder LH (1992) Introducing intertemporal and open economy features in applied general equilibrium models. In: Henk D, vd Klundert T, v Sinderen J (eds) Applied general equilibrium modelling, Dordrecht: Kluwer Academic Publishers 47–64

    Google Scholar 

  6. Breuss F, Tesche J (1991) A CGE model for Austria. Empirica Austrian Economic Papers 18:135–166

    Google Scholar 

  7. Buiter WH (1988) Death, birth, productivity growth and debt neutrality. Economic Journal 98:279–293

    Google Scholar 

  8. Deardorff AV, Stern RM (1986) The Michigan model of world production and trade, Cambridge/Mass.-London: MIT Press

    Google Scholar 

  9. Dewatripont M, Michel G (1987) On closure rules, homogeneity and dynamics in applied general equilibrium models. Journal of Development Economics 26:65–76

    Google Scholar 

  10. Dornbusch R, Frankel J (1987) Macroeconomics and protection. In: Stern R (ed) US trade policies in a changing world economy, Cambridge/Mass: MIT Press 77–130

    Google Scholar 

  11. Eichenbaum MS, Hansen LP, Singleton KJ (1988) A time series analysis of representative agent models of consumption and leisure choice under uncertainty. Quarterly Journal of Economics 103:51–78

    Google Scholar 

  12. Engel Ch, Kletzer K (1990) Tariffs and saving in a model with new generations. Journal of International Economics 28:71–91

    Google Scholar 

  13. Frenkel JA, Razin A (1987) Fiscal policies and the world economy, Cambridge/Mass. MIT Press

    Google Scholar 

  14. Gavin M (1991) Tariffs and the current account: On the macroeconomics of commercial policy. Journal of Economic Dynamics and Control 15:27–52

    Google Scholar 

  15. Goulder LH, Summers LH (1989) Tax policy, asset prices, and growth: A general equilibrium analysis. Journal of Public Economics 38:265–296

    Google Scholar 

  16. Goulder LH, Eichengreen B (1992) Trade liberalization in general equilibrium: Intertemporal and inter-industry effects. Canadian Journal of Economics 25:253–280

    Google Scholar 

  17. Goulder LH, Eichengreen B (1989) Savings promotion, investment promotion and international competitiveness. In: Feenstra R (ed) Trade policies for international competitiveness, Chicago: University of Chicago Press 5–44

    Google Scholar 

  18. Hall RE (1988a) Intertemporal substitution in consumption. Journal of Political Economy 96:339–357

    Google Scholar 

  19. Hall RE (1988b) Substitution over time in work and consumption. NBER Working Paper No 2789, Cambridge/Mass.:NBER

    Google Scholar 

  20. Harris RC (1986) Market structure and trade liberalization: A general equilibrium assessment. In: Srinivasan TN, Whalley J (eds) General equilibrium trade policy modeling, Cambridge/Mass.: MIT-Press, 231–250

    Google Scholar 

  21. Harrison GW (1986) A general equilibrium analysis of tariff reductions. In: Srinivasan TN and Whalley J (eds) Geheral equilibrium trade policy modeling, Cambridge/Mass.: MIT-Press, 101–123

    Google Scholar 

  22. Harrison GW, Rutherford TF, Wooton I (1991) An empirical database for a general equilibrium model of the european communities. Empirical Economics 16:95–120

    Google Scholar 

  23. Hayashi F (1982) Tobin's marginal q and average q: A neoclassical interpretation. Econometrica 50:213–224

    Google Scholar 

  24. Jorgenson DW, Yun KY (1990) Tax reform and US economic growth. Journal of Political Economy 95:151–193

    Google Scholar 

  25. Jorgenson DW, Wilcoxen PJ (1990a) Intertemporal general equilibrium modeling of US environmental regulation. Journal of Policy Modeling 12:715–744

    Google Scholar 

  26. Jorgenson DW, Wilcoxen PJ (1990b) Environmental regulation and US economic growth. RAND Journal of Economics 21:314–340

    Google Scholar 

  27. Keuschnigg Ch (1991) How to compute perfect foresight equilibria. Discussion Paper, University of Bonn, Sonderforschungsbereich 303

  28. King R, Plosser C, Rebelo T (1988) Production, growth and business cycles I. The basic neoclassical model. Journal of Monetary Economics 21:195–232

    Google Scholar 

  29. Kohler W (1991a) Income distribution and labor market effects of Austrian pre- and post-Tokyo-round tariff protection. European Economic Review 35:139–154

    Google Scholar 

  30. Kohler W (1991b) Multilateral trade liberalization: Some general equilibrium simulation results for Austria. Empirica-Austrian Economic Papers 18:167–199

    Google Scholar 

  31. Krugman PR (1982) The macroeconomics of protection with a floating exchange rate. Carnegie Rochester Conference Series on Public Policy 16:141–182

    Google Scholar 

  32. Lächler U (1985) The elasticity of substitution between imported and domestically produced goods in Germany. Weltwirtschaftliches Archiv 121:74–96

    Google Scholar 

  33. Mankiw NG (1985) Consumer durables and the real interest rate. Review of Economics and Statistics 67:353–362

    Google Scholar 

  34. Mankiw NG, Rotemberg JJ, Summers LH (1985) Intertemporal substitution in macroeconomics. Quarterly Journal of Economics 100:225–251

    Google Scholar 

  35. Manne AS, Rutherford TF (1993) International trade in oil, gas and carbon emission rights: An intertemporal general equilibrium model. Paper presented at IIASA, Laxenburg, Austria, September 1992

  36. Mansur A, Whalley J (1984) Numerical specification of applied general equilibrium models: Estimation, calibration, and data. In: Scarf HE and Shoven JB (eds) Applied general equilibrium analysis, Cambridge/Mass.: Cambridge University Press 69–127

    Google Scholar 

  37. Matsuyama K (1988) Terms-of-trade, factor intensities and the current account in a life cycle model. The Review of Economic Studies 55:247–262

    Google Scholar 

  38. Melo de J, Robinson S (1989) Product differentiation and the treatment of foreign trade in computable general equilibrium models of small economies. Journal of International Economics 27:47–67

    Google Scholar 

  39. Mussa M (1978) Dynamic adjustment in the Heckscher-Ohlin-Samuelson model. Journal of Political Economy 86:775–791

    Google Scholar 

  40. O'Rourke K (1989) Tariffs and the current account with short-run capital specificity. Economics Letters 30:67–70

    Google Scholar 

  41. Razin A, Svensson L (1983) Trade taxes and the current account. Economics Letters 13:67–70

    Google Scholar 

  42. Rutherford TF (1992) The welfare effects of carbon restrictions: results from a recursively dynamic trade model, OECD: Economics Department Working Paper No 112

  43. Sen P, Turnovsky SJ (1989) Tariffs, capital accumulation, and the current account in a small open economy. International Economic Review 30:811–831

    Google Scholar 

  44. Shiells CR, Stern RM, Deardorff AV (1986) Estimates of the elasticities of substitution between imports and home goods for the United States. Weltwirtschaftliches Archiv 122:497–519

    Google Scholar 

  45. Summers LH (1981) Taxation and corporate investment: A q-theory approach. Brookings Papers on Economic Activity 1:67–127

    Google Scholar 

  46. Whalley J, Yeung B (1984) External sector ‘closing’ rules in applied general equilibrium models. Journal of International Economics 16:123–138

    Google Scholar 

  47. Wilcoxen PJ (1989) A fast algorithm for solving rational expectations models. Discussion Paper, University of Melbourne: Impact Research Center

Download references

Author information

Authors and Affiliations

  1. Department of Economics, Institute for Advanced Studies, Stumpergasse 56, 1060, Vienna, Austria

    Christian Keuschnigg

  2. Department of Economics, University of Essen, P.O. Box 103 764, 45141, Essen 1, Germany

    Wilhelm Kohler

Authors
  1. Christian Keuschnigg
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Wilhelm Kohler
    View author publications

    You can also search for this author in PubMed Google Scholar

Additional information

We gratefully acknowledge financial support by the Austrian National Bank under grant no. 3327. Keuschnigg is also grateful to financial support received from Deutsche Forschungsgemeinschaft, Sonderforschungsbereich 303 at the University of Bonn. We presented earlier versions of the paper and benefitted from the discussion in seminars at Catholic University of Leuven, Erasmus University of Rotterdam and Universities of Konstanz and Linz. We are obliged to two anonymous referees for constructive comments.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Keuschnigg, C., Kohler, W. Modeling intertemporal general equilibrium: An application to Austrian commercial policy. Empirical Economics 19, 131–164 (1994). https://doi.org/10.1007/BF01205731

Download citation

  • Received:

  • Revised:

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF01205731

JEL Classification System-Numbers

Search

Navigation