Capros P., P. Karadeloglou, and G. Mentzas (1988) "Economic Modelling Paradigms: General Equilibrium Vs. Neokeynesian", in S. Tzafestas, A. Eisinberg and L. Carotenuto "System Modelling and Simulation", North Holland Pub. Co.
Most applied macroeconomic models in industrialized countries are based on the Keynesian framework. In the last decade numerous empirical applications in developing countries adopted a general equilibrium modelling approach. A harmonisation and a formalization of combined approaches is required. Towards this objective, we design and estimate two typical one-sector models (a Keynesian model and a general equilibrium one) in a way to be representative of large-scale models. The two models share most of the equations and have the same estimated behavioural elasticities. We carry out a systematic comparison of their properties by applying several common shocks to the exogenous variables. Recommendations for a synthesis of their results and a policy-oriented combined use of the models are proposed. A method for easy transformation of an existing Keynesian model into a general equilibrium one is also provided.
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