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GTAP Resources: Frequently Asked Question Details

Subject: Chapter 5

Question: In Chapter 5 (Aggregation and Computation of Equilibrium Elasticities) of the GTAP-Book it is told that the matrix of the general equilibrium, own-price elasticities of demand is "qualitativly symmetric". Looking at table 5A (which this statement refers to) I cannot see any symmetry. What could be my error? What does "qualitativly" mean?

Thank you in advance for your help.

Answer: Thanks for your query about GE elasticities of demand. I am pleased that someone is considering this very useful concept! I assume you are referring to Table 5.3A in the GTAP book.

The qualitative properties of this matrix are as follows:

1. All own-price elasticities of demand are negative.

2. Off-diagonal elasticities (i.e. cross-price elasticities) are of both signs -- i.e. both substitutes and complements. These elements are also sign-symmetric. For example, when the market price of US food rises by 1%, the GE demand for EU manufactures (under the standard GE closure) falls. Symmetry is evident in the fact that a rise in the market price of EU manufactures elicits a drop in the GE demand for US food products. (The chapter contains extensive discussion of the reasons for this result, along with a contrasting set of PE elasticites.

An option for computing GE elasticities has been built into the new version of RunGTAP which we are now testing. We hope they will be more widely used in the future.

Tom Hertel

Source: Mailing List

Date Added: 11/10/2000