The Monash style of computable general equilibrium modeling: A framework for practical policy analysis

Peter Bishop Dixon, Robert B Koopman, Maureen Rimmer

    Research output: Chapter in Book/Report/Conference proceedingChapter (Book)Researchpeer-review

    15 Citations (Scopus)

    Abstract

    MONASH models are descended from Johansen s 1960 model of Norway. The first MONASH model was ORANI, used in Australia s tariff debate of the 1970s. Johansen s influence combined with institutional arrangements in their development gave MONASH models distinctive characteristics, facilitating a broad range of policy-relevant applications. MONASH models currently operate in numerous countries to provide insights on a variety of questions including: the effects on: macro, industry, regional, labor market, distributional and environmental variables of changes in: taxes, public consumption, environmental policies, technologies, commodity prices, interest rates, wage-setting arrangements, infrastructure and major-project expenditures, and known levels and exploitability of mineral deposits (the Dutch disease). MONASH models are also used for explaining periods of history, estimating changes in technologies and preferences and generating baseline forecasts. Creation of MONASH models involved a series of enhancements to Johansen s model, including: (i) a computational procedure that eliminated Johansen s linearization errors without sacrificing simplicity; (ii) endogenization of trade flows by introducing into computable general equilibrium (CGE) modeling imperfect substitution between imported and domestic varieties (the Armington assumption); (iii) increased dimensionality allowing for policy-relevant detail such as transport margins; (iv) flexible closures; and (v) complex functional forms to specify production technologies. As well as broad theoretical issues, this chapter covers data preparation and introduces the GEMPACK purpose-built CGE software. MONASH modelers have responded to client demands by developing four modes of analysis: historical, decomposition, forecast and policy. Historical simulations produce up-to-date data, and estimate trends in technologies, preferences and other naturally exogenous but unobservable variables. Decomposition simulations explain historical episodes and place policy effects in historical context. Forecast simulations provide baselines using extrapolated trends from historical simulations together with specialist forecasts. Policy simulations generate effects of policies as deviations from baselines. To emphasize the practical orientation of MONASH models, the chapter starts with a MONASH-style policy story.
    Original languageEnglish
    Title of host publicationHandbook of Computable General Equilibrium Modeling: Volume 1A
    EditorsPeter B Dixon, Dale W Jorgenson
    Place of PublicationOxford UK
    PublisherNorth-Holland
    Pages23 - 103
    Number of pages81
    Edition1st
    ISBN (Print)9780444536341
    DOIs
    Publication statusPublished - 2013

    Cite this

    Dixon, P. B., Koopman, R. B., & Rimmer, M. (2013). The Monash style of computable general equilibrium modeling: A framework for practical policy analysis. In P. B. Dixon, & D. W. Jorgenson (Eds.), Handbook of Computable General Equilibrium Modeling: Volume 1A (1st ed., pp. 23 - 103). Oxford UK: North-Holland. https://doi.org/10.1016/B978-0-444-59568-3.00002-X
    Dixon, Peter Bishop ; Koopman, Robert B ; Rimmer, Maureen. / The Monash style of computable general equilibrium modeling: A framework for practical policy analysis. Handbook of Computable General Equilibrium Modeling: Volume 1A. editor / Peter B Dixon ; Dale W Jorgenson. 1st. ed. Oxford UK : North-Holland, 2013. pp. 23 - 103
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    Dixon, PB, Koopman, RB & Rimmer, M 2013, The Monash style of computable general equilibrium modeling: A framework for practical policy analysis. in PB Dixon & DW Jorgenson (eds), Handbook of Computable General Equilibrium Modeling: Volume 1A. 1st edn, North-Holland, Oxford UK, pp. 23 - 103. https://doi.org/10.1016/B978-0-444-59568-3.00002-X

    The Monash style of computable general equilibrium modeling: A framework for practical policy analysis. / Dixon, Peter Bishop; Koopman, Robert B; Rimmer, Maureen.

    Handbook of Computable General Equilibrium Modeling: Volume 1A. ed. / Peter B Dixon; Dale W Jorgenson. 1st. ed. Oxford UK : North-Holland, 2013. p. 23 - 103.

    Research output: Chapter in Book/Report/Conference proceedingChapter (Book)Researchpeer-review

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    N2 - MONASH models are descended from Johansen s 1960 model of Norway. The first MONASH model was ORANI, used in Australia s tariff debate of the 1970s. Johansen s influence combined with institutional arrangements in their development gave MONASH models distinctive characteristics, facilitating a broad range of policy-relevant applications. MONASH models currently operate in numerous countries to provide insights on a variety of questions including: the effects on: macro, industry, regional, labor market, distributional and environmental variables of changes in: taxes, public consumption, environmental policies, technologies, commodity prices, interest rates, wage-setting arrangements, infrastructure and major-project expenditures, and known levels and exploitability of mineral deposits (the Dutch disease). MONASH models are also used for explaining periods of history, estimating changes in technologies and preferences and generating baseline forecasts. Creation of MONASH models involved a series of enhancements to Johansen s model, including: (i) a computational procedure that eliminated Johansen s linearization errors without sacrificing simplicity; (ii) endogenization of trade flows by introducing into computable general equilibrium (CGE) modeling imperfect substitution between imported and domestic varieties (the Armington assumption); (iii) increased dimensionality allowing for policy-relevant detail such as transport margins; (iv) flexible closures; and (v) complex functional forms to specify production technologies. As well as broad theoretical issues, this chapter covers data preparation and introduces the GEMPACK purpose-built CGE software. MONASH modelers have responded to client demands by developing four modes of analysis: historical, decomposition, forecast and policy. Historical simulations produce up-to-date data, and estimate trends in technologies, preferences and other naturally exogenous but unobservable variables. Decomposition simulations explain historical episodes and place policy effects in historical context. Forecast simulations provide baselines using extrapolated trends from historical simulations together with specialist forecasts. Policy simulations generate effects of policies as deviations from baselines. To emphasize the practical orientation of MONASH models, the chapter starts with a MONASH-style policy story.

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    Dixon PB, Koopman RB, Rimmer M. The Monash style of computable general equilibrium modeling: A framework for practical policy analysis. In Dixon PB, Jorgenson DW, editors, Handbook of Computable General Equilibrium Modeling: Volume 1A. 1st ed. Oxford UK: North-Holland. 2013. p. 23 - 103 https://doi.org/10.1016/B978-0-444-59568-3.00002-X