Structure of the Intertemporal General Equilibrium Model
Structure of the Intertemporal General Equilibrium Model
This chapter describes the IGEM in detail – the demand and supply sides of the economy, the inter-industry (input-output) structure and the determination of intertemporal equilibrium. The production function allows for substitution among inputs, autonomous technical change, and induced technical change. The household model allows an aggregate demand function to be expressed as a sum of individual household demand functions; this aggregate function is non-homothetic and depends on the demographic projections of the population. Household optimization also generates goods demand and labor supply. Intertemporal optimization generates savings and hence investment for capital accumulation and the cost-of-capital equation. The model is made consistent with the National Accounts and the Input-Output accounts. We describe the solution algorithm.
Keywords: Intertemporal equilibrium, input-output, National Accounts, production function, substitution, induced technical change, household model, aggregation demand, savings, investment, cost of capital, labor supply, population projections, solution algorithm
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