Computable general equilibrium

Computable general equilibrium (CGE) models are a class of economic models that use actual economic data to estimate how an economy might react to changes in policy, technology or other external factors. CGE models are also referred to as AGE (applied general equilibrium) models. A CGE model consists of equations describing model variables and a database (usually very detailed) consistent with these model equations. The equations tend to be neoclassical in spirit, often assuming cost-minimizing behaviour by producers, average-cost pricing, and household demands based on optimizing behaviour.

CGE models are useful whenever we wish to estimate the effect of changes in one part of the economy upon the rest. They have been used widely to analyse trade policy. More recently, CGE has been a popular way to estimate the economic effects of measures to reduce greenhouse gas emissions.