Quarterly Review 1821

A Primer on Static Applied General Equilibrium Models

Patrick J. Kehoe | Stanford University, University College London, Federal Reserve Bank of Minneapolis
Timothy J. Kehoe | Consultant

Spring 1994

In this paper, we describe and analyze the basic structure of the applied general equilibrium (AGE) models used to assess the effects of government trade policies. Once we have constructed the basic model, we extend it to cover features such as increasing returns to scale, imperfect competition, and differentiated products, following the AGE modeling trend of the past 10 years. We then compare a static AGE model's predictions with the actual data on how Spain was affected by entering the European Community and find that, when exogenous effects are included, a static AGE model's predictions are fairly accurate.

Published In: Modeling North America's economic integration (1995, pp. 1-31)

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