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General Equilibrium Theory

Is an fundamental asusmption make in clasical / an neo classical economic modelling in which attempts to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that the interaction of demand and supply will result in an overall general equilibrium.

In general equilibrium, constant influences are considered to be noneconomic, or in other words, considered to be beyond the scope of economic analysis.[1]

The noneconomic influences may change given changes in the economic factors however, and therefore the prediction accuracy of an equilibrium model may depend on the independence of the economic factors from noneconomic ones.

Computable General Equilibrium (CGE) Models

  • Key idea: Calibrated general equilibrium models for policy simulation.
  • Modeling focus: Market-clearing with multiple sectors, agents, and policies.
  • Tools: Numerical computation, calibration to data.
  • Applications: Trade policy, tax policy, climate change economics.

Dynamic Stochastic General Equilibrium Models

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References

  • Arrow, K. J.; Debreu, G. (1954). "Existence of an equilibrium for a competitive economy". Econometrica. 22 (3): 265–290. doi:10.2307/1907353. JSTOR 1907353.
  • McKenzie, Lionel W. (1954). "On Equilibrium in Graham's Model of World Trade and Other Competitive Systems". Econometrica. 22 (2): 147–161. doi:10.2307/1907539. JSTOR 1907539.
  • McKenzie, Lionel W. (1959). "On the Existence of General Equilibrium for a Competitive Economy". Econometrica. 27 (1): 54–71. doi:10.2307/1907777. JSTOR 1907777.
  • Düppe, Till; Weintraub, E. Roy (2014-12-31). Finding Equilibrium. Princeton: Princeton University Press.
  • Arrow–Debreu model
  • Debunking the Myths of Computable General Equilibrium Models
  • Velupillai, K. Vela. "Uncomputability and undecidability in economic theory." Applied Mathematics and Computation 215.4 (2009): 1404-1416.
  • Dynamic Stochastic General Equilibrium Models in Macroeconomics (DSGEs)
  • Kydland, Finn E., and Edward C. Prescott. "Time to build and aggregate fluctuations." Econometrica: Journal of the Econometric Society (1982): 1345-1370.
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