the global trade and environment model: a projection of non … · the global trade and environment...

32
The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant, Vivek Tulpulé and Brian S. Fisher Australian Bureau of Agricultural and Resource Economics

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Page 1: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

The

Glo

bal T

rade

and

E

nviro

nmen

t Mod

el:

A p

roje

ctio

n of

non

-ste

ady

stat

e da

ta u

sing

Inte

rtem

pora

lG

TEM

The

Glo

bal T

rade

and

E

nviro

nmen

t Mod

el:

A p

roje

ctio

n of

non

-ste

ady

stat

e da

ta u

sing

Inte

rtem

pora

lG

TEM

Hom

Pan

t, V

ivek

Tul

pulé

and

Bri

an S

. Fis

her

Aus

tralia

n B

urea

u of

Agr

icul

tura

l and

Res

ourc

e E

cono

mic

s

Page 2: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

OB

JEC

TIV

ES

OB

JEC

TIV

ES

Der

ive

an in

tert

empo

ralv

ersi

on o

f GT

EM

D

emon

stra

te th

at a

n in

tert

empo

ral

gene

ral e

quili

briu

m m

odel

can

be

solv

ed

in G

EM

PAC

K w

ith a

sing

le p

erio

d no

n-st

eady

-sta

te d

atab

ase.

E

xam

ine

the

stea

dy st

ate

prop

ertie

s of t

he

mod

el.

Page 3: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Bas

ic A

ssum

ptio

nsB

asic

Ass

umpt

ions

inve

stm

ent i

s fu

lly b

ond

finan

ced

loca

l bon

ds a

re p

erfe

ctly

sub

stitu

tabl

e w

ith fo

reig

n bo

nds

and

henc

e ea

rn th

e sa

me

glob

al ra

te o

f ret

urn.

th

e re

gion

al c

apita

l sto

ck is

fully

ow

ned

by

ide

ntic

al re

gion

al h

ouse

hold

s.W

e do

not

impo

se th

e ar

bitr

age

cond

ition

th

at lo

cal b

onds

yie

ld th

e sa

me

rate

of

retu

rn a

s th

e ph

ysic

al c

apita

l.

Page 4: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Ass

umpt

ions

…A

ssum

ptio

ns…

(The

rat

e of

ret

urn

in p

hysi

cal c

apita

l is

allo

wed

to v

ary

acro

ss th

e re

gion

s)R

egio

nal h

ouse

hold

s sup

ply

fact

ors

inel

astic

ally

to th

e m

arke

t T

he p

opul

atio

n an

d th

e la

bor

supp

ly

grow

exp

onen

tially

at t

he r

ate

of n

Prod

uctio

n fu

nctio

ns a

re c

hara

cter

ised

by

con

stan

t ret

urns

to sc

ale

Page 5: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Giv

en th

is e

nvir

onm

ent,

the

only

pro

blem

le

ft to

a h

ouse

hold

is –

the

allo

catio

n of

inco

me

betw

een

curr

ent

cons

umpt

ion

and

accu

mul

atio

n of

ass

ets

to m

axim

ise

the

sum

of p

erio

dic

utili

ties.

Giv

en th

is e

nvir

onm

ent,

the

only

pro

blem

le

ft to

a h

ouse

hold

is –

the

allo

catio

n of

inco

me

betw

een

curr

ent

cons

umpt

ion

and

accu

mul

atio

n of

ass

ets

to m

axim

ise

the

sum

of p

erio

dic

utili

ties.

Page 6: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

The

pro

blem

of

the

hous

ehol

dT

he p

robl

em o

f th

e ho

useh

old

dtet

ct

∫∞−

0)

(ln

max

θ

Subj

ect t

o

)(

][

)(

//

f th t

tt

h tt

tt

f th t

f th t

t

bb

Wb

kR

bb

ndt

dbdt

dbc

++

+−

=

++

++

ρρ

whe

re lo

wer

cas

es a

re fo

r per

cap

ita v

aria

bles

Page 7: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

With

the

inte

rtem

pora

lbud

get c

onst

rain

t the

pr

oble

m b

ecom

es:

dtet

ct

∫∞−

0)

(ln

max

θsu

bjec

t to

hk

ft

vt

bdt

dvn

c0

00

00

})

(ex

p{ω

ωρ

++

=−

−∫

∫∞ whe

re

dtdv

nb

kR

bt

vh t

tt

th

k}

)(

exp{

][

00

00

∫∫

∞−

−−

+=

ρρ

ω

dtdv

nW

tv

th

})

(ex

p{0

00

∫∫

∞−

−=

ρω

Page 8: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

The

solu

tion

of th

e ab

ove

prob

lem

can

be

obta

ined

as

},)

(ex

p{0

0∫

−−

=t

vt

dvn

cc

θρ

).(

00

00

hk

fb

ωθ

++

=

and

To m

ake

the

abov

e so

lutio

n op

erat

iona

l we

need

to

spec

ify th

e ex

pect

atio

nalr

ules

det

erm

inin

g hu

man

and

non

-hum

an w

ealth

Page 9: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Ass

umpt

ions

on

expe

ctat

ions

:A

ssum

ptio

ns o

n ex

pect

atio

ns:

Hou

seho

lds h

ave

stat

ic e

xpec

tatio

ns

rega

rdin

g th

eir

inco

me,

pri

ces a

nd

popu

latio

ngr

owth

The

y be

lieve

that

the

glob

al in

tere

st r

ate

is fi

xed

for

ever

Page 10: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Und

er th

ese

assu

mpt

ions

we

have

and

ρω

/0

0W

h=

ρω

/0

00

kR

k=

)(

00

00

hk

fb

ωθ

++

=Th

eref

ore,

in p

lace

of

]][

/[

00

00

0fb

Wk

Rc

ρρ

θ+

+=

We

can

writ

e

and

ρar

e fix

ed w

e ob

tain

that

the

curr

ent

Giv

en th

at θ

cons

umpt

ion

is a

fixe

d fr

actio

n of

cur

rent

inco

me

Page 11: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

How

abo

ut in

vest

ors?

How

abo

ut in

vest

ors?

Page 12: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

The

opt

imal

inve

stm

ent

The

opt

imal

inve

stm

ent

IK

trr

trr

tretg

=−

δβ

ρρ

exp{

()}

whe

re,

-sta

tic e

xpec

tatio

ns1

/])

1([

−Π

Π−

+=

r tr t

rr t

re tR

δρ

-rat

iona

l exp

ecta

tions

1/]

)1(

[1

1−

ΠΠ

−+

=+

+r t

r tr

r tre t

ρ

re Tre T

1−=ρ

ρ-t

erm

inal

con

ditio

n

Page 13: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Cal

ibra

tion

issu

eC

alib

rati

on is

sue -c

onte

mpo

rane

ous (

stat

ic)

0)

,(

=t

tX

YF

-rec

ursi

vely

dyn

amic

0)

,,

(1

=−

tt

tX

YY

F

0)

,,

(1

=+

tt

tX

YY

F-I

nter

tem

pora

l

Page 14: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

How

do

we

calib

rate

an

inte

rtem

pora

lmod

el?

How

do

we

calib

rate

an

inte

rtem

pora

lmod

el?

Page 15: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Link

bet

wee

n ti

me

t va

lue

and

the

base

yea

r va

lue

Link

bet

wee

n ti

me

t va

lue

and

the

base

yea

r va

lue

Def

ine

∑=∆

=t k

kt

XX

cc1

_

01

23

time

X0

X1

X2

X3

ΔX

1

X

ΔX

2

ΔX

3

ΔX

1 +Δ

X1

+ Δ

X1

Then

, we

can

initi

aliz

e

0X

Xt=

tt

Xcc

X_

=U

pdat

e(ch

ange

)

∑=∆

+=

t kk

tX

XX

10

for a

ll t =

0, 1

, 2, …

Page 16: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Equ

ilibr

ium

?E

quili

briu

m?

Page 17: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Ste

ady

stat

e S

tead

y st

ate

To s

tabi

lize

debt

and

cap

ital s

tock

we

need

δrtr

trtrtr

rtr

trPY

IK

==

ΠΠ

In li

near

ised

form

py

ik

trtr

trtr

trtr

+=

+=

π

Whe

n pr

ices

are

con

stan

t, w

e ha

ve

yi

ktr

trtr

==

Page 18: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Thr

ee te

st si

mul

atio

nsT

hree

test

sim

ulat

ions

to e

xam

ine

the

conv

erge

nce

prop

erty

of t

he

mod

el u

nder

initi

al d

ata

cond

ition

s (m

omen

tum

sim

ulat

ion)

; to

com

pare

the

beha

vior

of tr

ajec

tori

es u

nder

ra

tiona

l and

stat

ic e

xpec

tatio

ns, a

nd

To

exam

ine

the

conv

erge

nce

prop

erty

of t

he

mod

el w

hen

all e

xoge

nous

fact

ors g

row

at 2

pe

r ce

nt p

er a

num

eve

ryw

here

.

Page 19: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Som

e re

sult

s…S

ome

resu

lts…

Page 20: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Mom

entu

m s

imul

atio

n…M

omen

tum

sim

ulat

ion…

Grow

th Ra

tes of

Rea

l GDP

00.511.522.5

199820002010202020302040205020602070208020902100

aus

usa

Jpn

eu fsu row

Page 21: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Mom

entu

m s

imul

atio

n…M

omen

tum

sim

ulat

ion…

Grow

th R

ates

of R

eal G

NP

00.

511.

522.

5 1998

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090

2100

aus

usa

Jpn

eu fsu row

Page 22: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Mom

entu

m s

imul

atio

n…M

omen

tum

sim

ulat

ion…

Grow

th R

ates o

f Reg

ional

Capit

al St

ock

012345 199820002010202020302040205020602070208020902100

aus

usa

Jpn

eu fsu row

Page 23: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Mom

entu

m s

imul

atio

n…M

omen

tum

sim

ulat

ion…

Grow

th R

ates o

f Reg

ional

Real

Inves

tmen

t

00.511.522.5

199820002010202020302040205020602070208020902100

aus

usa

Jpn

eu fsu row

Page 24: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Sta

tic

vsra

tion

al e

xpec

tati

ons

Sta

tic

vsra

tion

al e

xpec

tati

ons

Page 25: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Sta

tic

vsra

tion

al e

xpec

tati

ons

Sta

tic

vsra

tion

al e

xpec

tati

ons

Gro

wth

Rat

es o

f Cap

ital S

tock

in th

e U

S

00.

511.

522.

533.

54 1998

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090

2100

SE

RE

Page 26: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Sta

tic

vsra

tion

al e

xpec

tati

ons

Sta

tic

vsra

tion

al e

xpec

tati

ons

Page 27: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Uni

form

gro

wth

of

2 pe

r ce

ntU

nifo

rm g

row

th o

f 2

per

cent

Real

GDP

Grow

th R

ates

01234 1998

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090

Se Se Se Se Se Se

Page 28: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Uni

form

gro

wth

of

2 pe

r ce

ntU

nifo

rm g

row

th o

f 2

per

cent

GNP

Grow

th R

ates

01234 1998

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090

aus

usa

jap eu fsu row

Page 29: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Uni

form

gro

wth

of

2 pe

r ce

ntU

nifo

rm g

row

th o

f 2

per

cent

Grow

th R

ates

of R

egio

nal C

apita

l Sto

ck

012345 1998

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090

aus

usa

jap

eu fsu

row

Page 30: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Em

issi

on u

nder

the

mom

entu

mE

mis

sion

und

er t

he m

omen

tum

0204060

1997

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090

2100

Globa

l Emi

ssion

Per Y

ear

(Billio

n Ton

s of C

02 Eq

uivale

nt)

Page 31: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Glo

bal e

mis

sion

und

er 2

per

cent

pe

r an

num

uni

form

gro

wth

Glo

bal e

mis

sion

und

er 2

per

cent

pe

r an

num

uni

form

gro

wth

050100

150

200

1997

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090

2100

Globa

l Emi

ssion

Per Y

ear

(Billio

n Ton

s of C

o2 Eq

uivale

nt)

Page 32: The Global Trade and Environment Model: A projection of non … · The Global Trade and Environment Model: A projection of non-steady state data using Intertemporal GTEM Hom Pant,

Con

clus

ions

Con

clus

ions

A fi

xed

savi

ngs

rate

out

of c

urre

nt in

com

e (G

NP)

is

cons

iste

nt w

ith in

tert

empo

rally

optim

isin

g be

havi

orof

the

hous

ehol

ds.

The

mod

el d

ispl

ays

the

prop

erty

of a

neo

-cla

ssic

al g

row

th

mod

el -

the

grow

th ra

te o

f reg

iona

l eco

nom

ies

tend

to

conv

erge

tow

ard

the

grow

th ra

tes

of e

xoge

nous

ly s

uppl

ied

fact

ors

The

assu

mpt

ion

abou

t inv

esto

r’s e

xpec

tatio

ns fo

rmat

ion

did

not a

ffect

the

traj

ecto

ry n

otic

eabl

yA

n in

tert

empo

ralC

GE

mod

el c

an b

e so

lved

by

usin

g a

sing

le p

erio

d no

n-st

eady

sta

te d

atab

ase

and

impl

emen

ted

with

GEM

PAC

K.