Working Paper: Comparing the Economic Impact of an Export Shock in Two Modeling Frameworks
Holland, David W.
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Because of more restrictive assumptions on regional input-output (IO) models compared to general computable equilibrium (CGE) models, the literature agrees IO results are intuitively consistent with long-run equilibrium but otherwise overestimated. We compare the results of IO and CGE models from an exogenous export shock under various labor market constraints and capital closures. Consistent with the literature, we find the IO results do not match the CGE model's results. But contrary to conventional wisdom, the positive secondary impacts are larger with the CGE model than the IO model. Furthermore, we find the closest match between the direct effects is when the CGE model has short run restrictions.