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The Issue of Macroeconomic Closure Revisited and Extended

Zalai, Ernő and Révész, Tamás (2016) The Issue of Macroeconomic Closure Revisited and Extended. Acta Oeconomica, 66 (1). pp. 1-31. ISSN 0001-6373

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Abstract

Léon Walras (1874) had already realised that his neo-classical general equilibrium model could not accommodate autonomous investments. In the early 1960s, Amartya Sen analysed the same issue in a simple, one-sector macroeconomic model of a closed economy. He showed that fixing investment in the model, built strictly on neo-classical assumptions, would make the system overdetermined, and thus one should loosen some neo-classical conditions of competitive equilibrium. He analysed three not neo-classical “closure options”, which could make the model well-determined in the case of fixed investment. His list was later extended by others and it was shown that the closure dilemma arises in the more complex computable general equilibrium (CGE) models as well, as does the choice of adjustment mechanism assumed to bring about equilibrium at the macro level. It was also illustrated through several numerical models that the adopted closure rule can significantly affect the results of policy simulations based on a CGE model.

Item Type: Article
Subjects: H Social Sciences / társadalomtudományok > H Social Sciences (General) / társadalomtudomány általában
Depositing User: László Sallai-Tóth
Date Deposited: 07 Jun 2016 09:15
Last Modified: 31 Mar 2018 23:15
URI: http://real.mtak.hu/id/eprint/35651

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