Testing Cge trade models of the US - The indirect inference approach

Xu, Zequn 2022. Testing Cge trade models of the US - The indirect inference approach. PhD Thesis, Cardiff University. Item availability restricted.

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Abstract

Evaluating trade policies in addressing the welfare effects require both general equilibrium models that characterise the trade relationships across nations and regions and methods to assess the quantitative cr edibility. Two rival Computable General Equilibrium (CGE) models of trade against the US facts are set up in this study, one is derived from the classical theories of comparative advantage, the other is formed according to recent gravity theories. T hese two versions of CGE models are tested by indirect inference, a method that allows the use of sma ll samples of data and can powerfully reject a model that is not correctly specified. The test procedure mainly focuses on a comparison between real data behaviour and simulated data behaviour by using an ‘auxiliary model’. T he US is a large continental ec onomy, its effect on other countries’ GDPs and world prices should be incorporated when the model is being tested. A convenient approach of doing so is to introduce the ‘part of model’ test into the testing procedure , where other countries’ GDP and world p rices are simulated by a reduced form Vector Autoregression model The Monte Carlo experiments show that these tests have a high power. Empirical findings show that both versions of model pass the test with close probabilities. The US seems to have close t ies to the neighbouring economies modelled in the Gravity version and this will not compromise the model’s ability to match its trade facts. Tariff simulation indicates an approximately 10% welfare loss from an increase in tariffs imposed by the US governm ent, this implies that protection harms welfare , to a similar extent in both versions of the trade model we have examined

Item Type:	Thesis (PhD)
Date Type:	Completion
Status:	Unpublished
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > H Social Sciences (General)
Uncontrolled Keywords:	CGE model; trade policy; indirect inference; Heckscher-Ohlin model; gravity theory of trade; US trade pattern; import tariff; free trade and protectionism
Date of First Compliant Deposit:	8 July 2022
Last Modified:	08 Jul 2022 10:00
URI:	https://orca.cardiff.ac.uk/id/eprint/151093

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