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You can't have a CGE recession without excess capacity

Dixon, Peter and Rimmer, Maureen T (2011) You can't have a CGE recession without excess capacity. Economic Modelling, 28 (1-2). pp. 602-613. ISSN 0264-9993

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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.

Item Type: Article
Uncontrolled Keywords: U.S. recession, CGE modelling, excess capacity, sticky rents, mark-up pricing
Subjects: FOR Classification > 1402 Applied Economics
FOR Classification > 1502 Banking, Finance and Investment
Faculty/School/Research Centre/Department > College of Business
Faculty/School/Research Centre/Department > Centre of Policy Studies (CoPS)
Depositing User: Ms Julie Gardner
Date Deposited: 10 Apr 2014 01:12
Last Modified: 04 Oct 2015 23:54
URI: http://vuir.vu.edu.au/id/eprint/24574
DOI: https://doi.org/10.1016/j.econmod.2010.06.011
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Citations in Scopus: 11 - View on Scopus

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