Macro-micro development policy modeling
Using economy-wide models and microsimulation techniques to simulate policies/shocks and their impacts on welfare at the household level.
The PEP macro/modelling program uses computable general equilibrium (CGE) models, combined with sophisticated household survey-based microsimulation techniques, as "laboratories" to simulate and link the impact of macro shocks/policies to poverty and other dimensions of household welfare.
Steps:
- Construct macro model of the national economy (e.g. CGE model - see below)
- Use the model as a laboratory to simulate "business as usual", i.e. no shock/policy
- Introduce and simulate the effect of a specific policy intervention or shock
- Compare outcomes from both simulation scenarios
- Construct micro model (using household-survey data) to link the simulated macro effects to various dimensions of welfare at the household level
- Compare the micro impacts of various scenarios
PEP's unique expertise in the application of these combined techniques - especially in the specific context of developing countries - has been used in the conduct of several, often large-scale, research initiatives and specific donor-commissioned studies. Such as, for example:
- to assess the impact of the global financial crisis and appropriate policy responses
- to analyze the distributive impacts of various growth strategies - e.g. investing in public infrastructure
- to analyze public spending and fiscal space on child welfare
- to analyze various policy issues related to employment and inclusive growth in low-income countries
- etc. (find out more about PEP special initiatives)
Tool and methods - PEP CGE models
In ten years of building capacities in developing countries for policy analysis using modeling and simulation techniques, lead researchers from the PEP MPIA expert team have come to find that there was a need for reference CGE models that were more elaborate and closer to real-life conditions than the ones that had been used so far by the scientific community.
They realized, in particular, that policymakers - especially in developing countries - face challenges that call for impact assessments that look both forward in time, and beyond national boundaries to the global economy.
And so, a group of PEP modeling experts have devoted considerable time and energy to creating a series of PEP standard CGE models. These models are now valued and aknowledged worldwide as some of PEP's most important contributions to the international research community.
PEP CGE models are available for download, free of charge, along with extensive related training materials.
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