Past Event

INET Researcher Seminar: Davoud Taghawi-Nejad, Complexity Economics - "In the short run, we are all dead: Non-equilibrium dynamics in a computational general equilibrium climate model"

In studies of the economic effect and mitigation of climate change, the conventional model of choice is the computable general equilibrium (CGE) model. In these models, out-of-equilibrium transitions are not modeled. However, the economy is not in equilibrium; instead, it converges towards equilibrium. If the economy outside the equilibrium produces more climate gasses, the predictions of CGE models are dangerously wrong.

In this paper, we present a computational generalization of the Arrow-Debreu general equilibrium that is not in equilibrium during transitions but that converges to the same equilibrium as a CGE model with the same data and assumptions about production and consumption functions. We call this new class of models computational complete economy (CCE) models.

CCE models are agent-based models calibrated in the same manner as CGE models. In other words, we take the input–output matrix of the U.S. economy and use it to calibrate production and utility functions. Using these utility and production functions, we run an agent-based model (ABM). If the ABM is run without a policy change, it converges to the input–output matrix. In other words asymptotically it produces the same goods as the U.S. economy. If we simulate a policy change, it has the same asymptotic results as an equivalent CGE model. However, an interesting finding occurs on the way to equilibrium, where we observe that production and the climate effect are different than the equilibrium predictions of the CGE model. The model also has other interesting applications in international trade and macroeconomics.


18 May 2017 15:00 - 16:30


INET Oxford

Eagle House, Walton Well Road, Oxford, OX2 6ED

Complexity Economics