Validating Policy-Induced Economic Change Using Sequential General Equilibrium SAMs

Abstract

We present a novel sequential approach that explores the capacity of CGE models to track down policy induced economic changes and their ability to generate contrastable data. We use an empirical 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 which provides further support to the CGE modelling tool.