You can't have a CGE recession without excess capacity

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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

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.

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Item type	Article
URI	https://vuir.vu.edu.au/id/eprint/24574
DOI	10.1016/j.econmod.2010.06.011
Official URL	http://www.sciencedirect.com/science/article/pii/S...
Subjects	Historical > FOR Classification > 1402 Applied Economics Historical > FOR Classification > 1502 Banking, Finance and Investment Historical > Faculty/School/Research Centre/Department > College of Business Current > Division/Research > Centre of Policy Studies (CoPS)
Keywords	U.S. recession, CGE modelling, excess capacity, sticky rents, mark-up pricing
Citations in Scopus	22 - View on Scopus
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