ABSTRACT
This chapter develops and presents a small-scale computable general equilibrium (CGE) model of the New Zealand economy designed as a quantitative counterpart. It describes the structure of the model, the data, and the parameter estimation/selection process. The chapter considers the process of obtaining parameters, and the process of calibrating the model to a consistent base-year database. CGE models are sophisticated theoretical models, and the results are a function of the assumptions made in specifying the model. CGE models are not meant to be perfect descriptions of reality, but to tell a story that is consistent with certain stylised facts, and to provide a consistent framework for the policy debate. Most of the criticisms that have been levelled at the CGE approach are essentially criticisms of the manner in which it has been used, and cautionary notes on the interpretation of results, rather than criticisms of the method itself.
