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A 71 Sector CGE Model for Germany

Author

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  • Andreas Mense
  • Andreas Mense, DIW Berlin/FAU Erlangen-Nürnberg
  • Konstanin Kholodilin, Ph.D, DIW Berlin

Abstract

A sectorally disaggregated CGE model is a powerful tool for economic policy simulation. Using the sectoral data, that are encompassing 71 sectors/commodities taken from the most recent input-output table refering to 2007, we were able to construct a detailed general equilibrium model for Germany at the national level. This model allows us to simulate the impact of different shocks on the output and employment in virtually all sectors of German economy. The possibilities of a further development of the model are numerous. One important possibility is to shift the focus of the model to the regional NUTS1 (Länder) level. To the best of our knowledge, no CGE model at such level of regional disaggregation has been suggested yet.We used the basic 2-sector/commodities CGE model EcoMod7 as a departure point and extended it to 71 sectors. The model uses a CES production function, an LES households’ utility function, and a Cobb-Douglas banks' and government utility functions. Foreign trade is modelled by a CET and a CES production function. The CES production elasticities were estimated using the approach exemplified by Arrow, Chenery, Solow and Minhas (1961). LES minimum consumption and consumption shares will be estimated for a 30-sector economy using European data on consumption and prices. We also examine different possibilities for estimating the elasticities of CET and CES Armington functions.The model is set up and performs well. Also, elasticities for the CES production function were estimated and are within the expected range.

Suggested Citation

  • Andreas Mense & Andreas Mense, DIW Berlin/FAU Erlangen-Nürnberg & Konstanin Kholodilin, Ph.D, DIW Berlin, 2011. "A 71 Sector CGE Model for Germany," EcoMod2011 2941, EcoMod.
    • Handle: RePEc:ekd:002625:2941
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    References listed on IDEAS

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