Introduction to Computational Economywide Modeling with GAMS

The analysis of economywide models is a particularly demanding topic in economics since it involves the study of interdependence. It implies a move to the realm of multiple heterogeneous agents, sectors and institutions interacting in complex ways. While there are some analytical methods and results available to help us in such endeavor, computational methods become necessary when we move to medium to large size models or when we have to deal with particularly complex ones. Our goal here is to provide a basic introduction to the art of economy-wide modeling. We present a sequence of small models, we show how to implement them in the General Algebraic Modeling System (GAMS) and we perform and suggests some experiments. We start with an Input-Output model in which quantities produced are determined given technology and demand levels, we follow with a Production Prices model which determines relative prices given technology and a distributive variable, and then we move to a General Equilibrium model in which prices and quantities are determined simultaneously given technology, preferences and endowments. Finally, we introduce SAM based and Johansen style Computable General Equilibrium models.