You can't have a CGE recession without excess capacity

Peter Dixon, Maureen Rimmer

    Research output: Contribution to journalArticleResearchpeer-review

    16 Citations (Scopus)

    Abstract

    Simulations with dynamic, single country, CGE models typically imply that reductions in domestic demand, e.g. a cut in investment, generate increases in exports and reductions in imports facilitated by real depreciation. However, currently in the U.S. a large reduction in investment is occurring simultaneously with a contraction in exports and little movement in the real exchange rate. We show that to describe this situation it is necessary to drop the standard CGE assumption that capital is always fully employed in every industry. After introducing an excess capacity specification, we simulate the U.S. recession with and without the Obama stimulus package.
    Original languageEnglish
    Pages (from-to)602 - 613
    Number of pages12
    JournalEconomic Modelling
    Volume28
    Issue number1-2
    DOIs
    Publication statusPublished - 2011

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