Computable general equilibrium (CGE) models are widely used as an advanced tool to evaluate alternative economic strategies and policy measures. These models are well rooted in solid economic theory, yet a crucial question is hardly asked: how well do these models perform? We address this question by comparing the economic performance of the Spanish economy in 1988 with the simulation results drawn from a CGE model calibrated with a 1987 Social Accounting Matrix. The values of endogenous variables used in the comparison are the equilibrium values provided by the model after updating the values of exogenous variables such as labour and capital endowments, real exports and effective nominal exchange rates with the European Community and the rest of the world, real government expenditures, and various tax rates, government subsidies, and transfers. The comparison shows that the model captures adequately the major developments that occurred in the Spanish economy in 1988. This result increases our confidence in the quantitative estimates derived from the model in the usual simulation exercises.
KEY WORDS Computable general equilibrium Simulation
Microeconomic database Model performance
The growing interest in computable general equilibrium (CGE) analysis during the last two decades has led to the development of a variety of large multisectoral models aimed at evaluating the impact on resource allocation and income distribution of changes in tax-subsidy systems or, more generally, in government policies in both developed and developing countries. , , Pereira and Shoven (1988), , Decaluwe and Martens (1988), and provide good summaries of recent developments in the field. As the use of CGE models has become widespread and practitioners have drawn conclusions that questioned previously held views, the reliability of the results obtained from these models has become an issue of considerable interest. Some of the difficulties that beset these models-methodological, structural and data related-have been repeatedly pointed out by various authors (Dervis et al., 1982;