Capros P., P. Karadeloglou and G.N. Mentzas (1989) "Applied General Equilibrium versus Neokeynesian Approaches in Policy Modelling"
Paper presented at the 4th Congress of the European Economic Association, 2-4 Sept., Augsburg, West Germany.
Within applied macroeconomic modelling two distinct approaches have emerged: general equilibrium and neo-Keynesian. Usually, the former is applied to developing countries, and the latter to industrialized ones. In this paper, we provide a systematic comparative assessment of the properties of the two modelling approaches. We design and estimate two typical one-sector models (a neo-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. Finally, the modelling aspects of the paper may be useful to analysts, since it provides a method for easy transformation of an existing neo-Keynesian model into a genera equilibrium one.
Paper available on request (hard copy only).
