ABSTRACT
This chapter presents a particular input-output (IO) extension known as the computable general equilibrium (CGE) model. It analyses the restricted nature of the general equilibrium embodied in the 10 model. The chapter describes the microeconomic structure of an interregional CGE model. It presents a brief overview of the macroeconomic assumptions underlying CGE analysis. The chapter discusses data requirements of CGE analysis and also describes policy applications of regional-level CGE analysis. It shows that the conceptual continuum linking IO and CGE models. The IO model, on the basis of several simplifying assumptions, trades theoretical refinement for empirical tractability. The chapter focuses on the dominant microeconomic features of a CGE model and also discusses both dimensions of closure for a simple closed economy. The macro-adjustment mechanism that restores equilibrium between savings and investment is generally more complex in the open-economy case than in the closed-economy case because of the link between the balance of payments and the level of savings.
