Lofgren, et. al.: A Standard CGE model in GAMS

Lofgren, H., R. L. Harris and S. Robinson. (2002). A Standard Computable General Equilibrium (Cge) Model in Gams: Int Food Policy Res Inst.

GAMS is the General Algebraic Modeling System. It is, “…a high-level modeling system for mathematical programming problems”.

This manual is a detailed account of CGE models and their use. After a brief overview, it turns to an explanation of SAMS.

A SAM is, “…a comprehensive, economy wide data framework, typically representing the economy of a nation” (3). A standard SAM distinguishes between accounts for “activities” and “Commodities” (4). “This separation of activities from commodities is preferred because it permits activities to produce multiple commodities…while any commodity may be produced by multiple activities” (4). Table 1 provides a very helpful review of the structure of a SAM (5).

Overview of the Standard CGE Model:

“The standard CGE model explains all of the payments recorded in the SAM” (8). Producers are assumed to maximize profits. This is contingent on technology. A standard overview of economic modeling follows, first focusing on production and factors, and then focusing on households, firms, governments and consumption. The final stage is the interaction of supply and demand on a broader market. There are three “macroeconomic balances” involved in a CGE model: the current government balance, the external balance (including trade balance) and the savings/investment balance (14).

The remainder of the article focuses on the mathematical notation for the construction of this model, as well as a more detailed analysis of how CGEs and SAMS are used in GAMS.