Creating a GTAP baseline for 2014 to 2050 using shock-intensive simulations

Abstract

Shock-intensive simulations can be used to: update computable general equilibrium (CGE) databases; estimate trends in industry technologies and the preferences of households, governments and importers; and generate baselines that incorporate forecasts from organizations specializing in different aspects of economies. We demonstrate the shock-intensive methodology by applying it to the Global Trade Analysis Project (GTAP) model. We update a 2014 GTAP database to 2019 with data-driven shocks to an array of macro and energy variables and describe the simulated shifts in technologies and preferences. Then, starting from the updated database, we conduct baseline simulations for 2019 to 2030, 2030 to 2040 and 2040 to 2050 in which macro and energy variables are driven by forecasts from the International Monetary Fund (IMF), International Institute for Applied Systems Analysis (IIASA) and International Energy Agency (IEA). The simulations connect disjoint years (e.g. 2019 and 2030) and use a smooth-growth assumption for savings in each region to jump over intermediate years. Investors are given forward-looking expectations so that their simulated decisions in 2030, for example, are realistic in light of prospects for 2030 to 2040. Considerable space in the paper is devoted to explaining closure swaps for facilitating shock-intensive simulations.