Computable General Equilibrium (CGE) Models: A Comprehensive Review and Future Directions

Abstract

This comprehensive analysis delves into the landscape of Computable General Equilibrium (CGE) models, examining their historical development, key components, applications, strengths, limitations, and future directions. CGE models have become indispensable tools for understanding the intricate dynamics of modern economic systems, offering a holistic perspective that considers the complex interactions among sectors, households, and governments. The study reveals the strengths of CGE models, including their capacity to provide a comprehensive view of the economy, analyse policy interactions, and incorporate behavioural responses. However, challenges such as data limitations and simplifying assumptions pose inherent limitations. The analysis identifies promising future directions, including the integration of machine learning, leveraging big data, and advancing computational power. By addressing current challenges and embracing these innovations, CGE models can continue to play a pivotal role in economic analysis and policymaking, navigating the complexities of a dynamic and evolving economic landscape.