1GENERAL EQUILIBRIUM MODELS: AN OVERVIEW

The development of general equilibrium models (GEMs) goes back a long way in economics, both at a theoretical level and as a tool for empirical analysis. General equilibrium theory and modeling have proved to be relevant and useful for understanding economic interactions between markets and agents in complex modern economies and the determination of prices and quantities as a result of the latter interactions. Applied GEMs have been developed and used to address a wide range of theoretical questions and empirical/policy issues, in the fields of macroeconomics, international trade, public finance, and environmental analysis, among others. GEMs are used for many purposes, including simulation of policy changes and response to exogenous shocks, as well as forecasting (mostly macroeconomic) variables. Following international experience, general equilibrium analysis and modeling are increasingly applied as tools that assist in better understanding the Chilean economy. GEMs are developed and used in Chile on a wide range of policy questions and areas, including macroeconomic, trade, environmental, and tax policy. The purpose of this book—the first of its kind in Chile—is to publish a representative collection of recent GEM research and We thank Norman Loayza for useful comments and suggestions. Elías Albagl