The Subjective Assumptions Shaping CGE Models and Australian Economic Policy
Description
Computable General Equilibrium (CGE) modelling is a central element of economic and policy debate in Australia, used for decisions ranging from tax reform to the approval of major projects. This report takes a deep dive into the surprising, little-known theoretical and design assumptions that fundamentally determine CGE model results and subsequent policy advice. Discover why CGE models often assume no money or interest rates, that inflation has no impact on the real economy, and that physical capital can be costlessly repurposed (meaning no stranded assets exist). Ultimately, the model results are 100 per cent determined by the subjective choices made by the modellers, often transforming these models into powerful tools of persuasion rather than objective analytical tools
United States
