The third course further enriches the simple general equilibrium model presented in the second course. A public administration is introduced: it collects taxes and sets up subsidies and transfers. Then households' saving is introduced, which changes the macroeconomic equilibrium condition. Then business investment is introduced, which constitutes a new demand for goods and services, modifies the equilibrium condition of the goods market, and further modifies the macroeconomic equilibrium condition. Finally, relations with the rest of the world are introduced with exports and imports. This constitutes a new demand and a new supply of goods and services; it modifies the equilibrium condition of the goods market, and it further modifies the macroeconomic equilibrium condition. Finally, this course has allowed us to progressively build a general equilibrium model that is fairly representative of the models used in economic research.
In a first step, the course presents the general principles of general equilibrium models, and in particular Walras's law: if there is equilibrium on n-1 markets, there is equilibrium on the nth market. Then this type of model is illustrated using a simple model with 8 equations and 8 unknown variables. Walras' law is illustrated with this small model, showing that if 7 equations are respected, then the 8th equation is necessarily respected. In a second step, the principles of construction of social accounting matrices are explained: this type of matrix records all the economic transactions and transfers made between the agents and institutions of an economy during one year; it is a square matrix where the sum of the cells of each row is equal to the sum of the cells of the corresponding column.... The Social Accounting Matrix of the previous model is presented. In a third step, the model is enriched with three goods, which allows us to enrich the production block with intermediate consumption, but also the demand block with a utility function.
Economists are increasingly called upon to design ex-ante evaluation models
on the impact of economic reforms and shocks on the economic environment. This
course is an introduction to partial equilibrium modeling. Students will learn
the principles of partial equilibrium, the structure and the different issues
of a GAMS program.
The first model is simple with only 6 equations and 6 unknowns, and it describes a national market with imports in a small country. Successive developments build upon the first model by introducing elaborated functional forms, the hypothesis of large country, substitute or complementary goods in consumption, value chains, and a world market. At the end of this course, students will be able to carry out simple but rich programs of ex-ante evaluation of the impact of economic reforms.