General Equilibrium Estimates Research Articles

Cooperation or Confrontation in U.S.–Japan Trade? Some General Equilibrium Estimates

Using a detailed calibrated general equilibrium model, we evaluate the effects of greater cooperation or confrontation in bilateral trade relations between the U.S. and Japan. Our numerical results indicate that, if a trade war between the two were precipitated, the U.S. would eventually benefit from the mutual imposition of reciprocally optimal tariffs. While this result appears negative for those who advocate free trade, it provides the key to overcoming an important incentive problem of liberalization. Specifically, we find that Japan gains more from U.S. unilateral liberalization than from bilateral liberalization and thus has an incentive to limit its commitment to removing trade barriers. Since the U.S. has a credible threat of retaliation, however, it can bargain with Japan to implement bilateral cooperation. In other words, the strategic environment is neither completely harmonious nor discordant. A credible threat of confrontation can secure the basis of cooperation. J. Japan. Int. Econ. June 1999, 13(2), pp. 119–139. Research Institute for Economics and Business Administration, Kobe University, Kobe 657-8501, Japan; and Department of Economics, Mills College, Oakland, California 94613, and Centre for Economic Policy Research, London, United Kingdom. Copyright 1999 Academic Press.Journal of Economic Literature Classification Numbers: F13, F14.

Winners and Losers from the Privatization and Regulation of Utilities: Lessons from a General Equilibrium Model of Argentina

A computable general equilibrium (CQE) model is used to estimate the macroeconomic and distributional effects of the privatization and regulation of utilities in Argentina, begun in 1989. Based on data available after the privatization that indicate different kinds of efficiency gains in electricity, gas, water, and telecommunications, both the privatization and effective regulation are estimated to yield significant macroeconomic benefits. Gains from the privatization accrue mainly to high-income classes, while gains from the effective regulation of newly privatized utilities accrue mainly to low-income classes. Computable General Equilibrium (CGE) estimates of overall employment effects suggest that privatization was not a major contributor to the dramatic rise in unemployment in Argentina between 1993 and 1995. This rise was more likely due to the 'tequila effect' of an interest rate shock.

Welfare Cost of (Low) Inflation: A General Equilibrium Perspective

This paper provides general equilibrium estimates of the steady-state welfare gains of lowering inflation from a low level to close to price stability, using an overlapping-generations growth model. Money demand is modeled on the basis that real money balances are a factor of production. Assuming a standard Fisher equation modified by the presence of an income tax, it is found that inflation unambiguously reduces capital intensity, drives up the before-tax real rate of return to capital, and unambiguously imposes a life-time welfare cost. This welfare cost is, however, quantitatively very modest (under 0.2 percent of GDP annually) within reasonable ranges of all parameter values.

Welfare Cost of (Low) Inflation: A General Equilibrium Perspective

This paper provides general equilibrium estimates of the steady-state welfare gains of lowering inflation from a low level to close to price stability, using an overlapping-generations growth model. Money demand is modeled on the basis that real money balances are a factor of production. Assuming a standard Fisher equation modified by the presence of an income tax, it is found that inflation unambiguously reduces capital intensity, drives up the before-tax real rate of return to capital, and unambiguously imposes a life-time welfare cost. This welfare cost is, however, quantitatively very modest (under 0.2 percent of GDP annually) within reasonable ranges of all parameter values.

Les effets économiques de l'intégration au sein de la Communauté économique et monétaire de l'Afrique centrale : estimations en équilibre général pour le Cameroun

The Economie Effects of Integration in the Central African Economic and Monetary Community : Some General Equilibrium Estimates for Cameroon In this paper we quantitatively assess the impact of the cemac on its largest member : Cameroon. We find that Cameroon will gain between 0.41 and 0.62 percent of its GDP. Our decomposition shows that the part of the agreement that calls for further preferential reduction of tariffs is immiserizing, although given the low level of intra-regional imports, the quantitative impact is quite small. Improved access to partner country markets accounts for about one-quarter of the gains. We find, however, that about three-quarters of the gains come from reduction of Cameroon's tariff against the rest of the world. Moreover, our estimates for Cameroon's unilateral trade liberalization show that it can gain marginally even more from full unilateral trade liberalization than it can from implementation of the CEMAC arrangements. Our results incorporate, in an otherwise small open economy model, the fact that Cameroon may possess regional market power, and we assess the difference in results with models with no regional market power.

Market Integration, Scale Economies and Labor Market Imperfection in an Applied General Equilibrium Model

This paper provides general-equilibrium estimates of the welfare gains and unemployment changes that may be expected from the single European market. The investigation uses a multicountry, multisector applied model with imperfection. The analysis is performed assuming three alternative wage determination mechanisms (flexible wages, wage indexation and efficiency-wage model). Labor market imperfection allows for the existence of involuntary unemployment rate. The main contribution in the paper is that economic integration could imply deterioration in employment in Europe.

The Marginal Cost of Funds in the Presence of Environmental Externalities

The marginal cost of funds (MCF) is useful for measuring the cost of taxation in cost-benefit and tax reform analysis. In this paper we present general equilibrium estimates of the MCF in an economy with environmental externalities. We find that excluding such effects can yield quite misleading results. The inclusion of externalities opens up a significantly larger potential for tax reform, and the ranking of taxes is strikingly changed. The estimate of the average, base-case MCF is reduced. We also indicate double dividends in the Norwegian economy.

COMPARING PARTIAL AND GENERAL EQUILIBRIUM ESTIMATES OF THE WELFARE COST OF INFLATION

Reserve banks worldwide have been moving towards zero inflation policies. Confusion clouds the welfare cost of maintaining such inflation policies despite the best attempts at clarification. Monetary theory research has shifted from partial to general equilibrium economies. This shift has left the partial equilibrium estimates of the welfare cost of inflation below most of the general equilibrium estimates. Put on a comparable basis, partial equilibrium estimates compare more closely with the general equilibrium estimates. Furthermore, evidence suggests that integration under the money demand function appears applicable in general equilibrium economies. Finally, the estimates depend on the elasticities of money demand and the underlying structural parameters.

Distortions in the Factor Market: Some General Equilibrium Estimates

The following sections are included:IntroductionMethodologyThe Empirical ResultsConclusionAppendixREFERENCES(This abstract was borrowed from another version of this item.)