Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Computable General Equilibrium Modeling, Numerical Simulations in a 2-Country Monetary General Equilibrium Model
Abstract: This paper presents the concept of numerical CGE modeling
with the help of a 2-country general equilibrium model. In the framework of
this simple dynamic monetary model the effects of a (unilateral) monetary
and fiscal expansion are simulated. The exchange rate of the home vis-ā-vis
the foreign currency depreciates in response to both types of shocks. The
monetary expansion leads to an increase in home relative to foreign private
consumption and to a sharp increase in relative home output in the short
run, while in the long run output increases in the foreign country and
decreases in the home country. The unilateral fiscal expansion, on the
other hand, results in a fall of private consumption in the home relative
to the foreign country, and in an increase in relative home output in the
short as well as in the long run. The world real interest rate falls quite
substantially in response to both shocks.
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