Objectives

This book will introduce you to computable general equilibrium (CGE) models. A CGE model is a powerful analytical tool that can help you to gain a better understanding of real-world economic issues. CGE models are a class of economic model that over the past twenty-five years has gained widespread use in the economics profession, particularly in government. Economists today are using these models to systematically analyze some of the most important policy challenges and economic “shocks” of the twentyfirst century, including global climate change, the spread of human diseases, and international labor migration.

Since the early 1990s, prominent CGE models have been built and maintained at the U.S. International Trade Commission, the Economic Research Service of the U.S. Department of Agriculture, the World Bank, and other national agencies and international organizations to provide ongoing economic analytical capability. These models have come to play an important part worldwide in government policy decisions. For example, the models' predictions about prices, wages, and incomes factored heavily in the debate about the terms of the North American Free Trade Agreement, the Kyoto Protocol, and China's entrance into the World Trade Organization.