Modelling Intertemporal General Equilibrium: An Application to Austrian Commercial Policy

Abstract: We present a multi-sector CGE model with a rigorous "macro-closure", featuring forward looking investment and savings behavior within an intertemporal optimization framework. This allows the model to capture several of the intertemporal effects of commercial policy that have been stressed by recent literature on the current account adjustment to such policies. We argue that pursuing a simulation approach in addressing these issues is warranted by certain limitations and ambiguities ofthe analytical literature. In addition to presenting the details of the model structure, the paper addresses calibration issues relating to the intertemporal parameters. The model is calibrated to a 1976 data set for the Austrian economy. Finally, the paper features an application of the model to a simple tariff liberalization scenario.