Validating policy induced economic change using sequential general equilibrium SAMs

Abstract

Acknowledgments: First author to JRC/SVQ/2015/J.1/0038/NC European Commission; second author to P09-SEJ-4546 from the Andalusian Regional Government and to MINECO ECO2012/35430; third author to MINECO ECO2014/52506R. All results, interpretations and opinions are the authors' only and should not be attributed to their academic institutions or financial supporters. ; We present a novel sequential approach that explores the capacity of Computable general equilibrium (CGE) models to track down policy-induced economic changes and their ability to generate contrastable data. We use an empirical Social accounting matrix (SAM) of the region of Andalusia, in the south of Spain, to construct an initial CGE model. This model is then perturbed with a set of policy shocks related to EU Structural Funds invested into Andalusia. These shocks are accompanied by some parameter adjustments that pick up the main external changes not explained by the model. We generate a sequence of model-produced virtual SAMs. We then compare the last virtual SAM in the sequence with a new available empirical SAM. This allows us to check relatedness, for the same year, between the model produced and the empirical SAMs. The results show a good fit to the empirical data, providing further support to the CGE modelling tool.