Abstract
Modelling and projecting consumption, investment and government demand by detailed commodities in CGE models poses many data and methodological challenges. We review the state of knowledge of modelling consumption of commodities (price and income elasticities and demographics), as well as the historical trends that we should be able to explain. We then discuss the current approaches taken in CGE models to project the trends in demand at various levels of commodity disaggregation. We examine the pros and cons of the various approaches to adjust parameters over time or using functions of time and suggest a research agenda to improve modelling and projection. We compare projections out to 2050 using LES, CES and AIDADS functions in the same CGE model to illustrate the size of the differences. In addition, we briefly discuss the allocation of total investment and government demand to individual commodities.
Highlights
Personal consumption expenditure is by far the largest component of final demand in most countries and changes in its commodity composition are an important driver of structural change
An appropriate representation of household consumption is essential for models focused on long-run dynamics, either covering the whole economy such as Computable General Equilibrium (CGE) models or detailing specific sectors such as Partial Equilibrium models for the energy or agri-food sectors
We focus on dynamic multi-country CGE models, myopic or with foresight, with varying detail of industry disaggregation, including CGE models with a focus on agrifood, land use and energy
Summary
Personal consumption expenditure is by far the largest component of final demand in most countries and changes in its commodity composition are an important driver of structural change. Aggregate consumption is further affected by population composition Disentangling these drivers from income and price dynamics in long-run analysis using aggregate demand functions is challenging. Implementing functions with well-founded price and income elasticities that can represent the observed income dynamics is the focus of improving the representation of long-run baseline consumption in CGE models. As a follow-up to this workshop, we first review here how household consumption is modeled in a broad range of CGE models and discuss the merits and deficiencies of these approaches.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
