Managing Macroeconomic Policies for Sustainable Growth
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Managing Macroeconomic Policies for Sustainable Growth

John Asafu-Adjaye and Renuka Mahadevan

The authors expertly reveal a model-based analysis of economic development and environmental issues with policy prescriptions for enhancing sustainable development. Within the last four decades, there has been a rapid deterioration in the quality of our environmental and natural resources, raising grave concerns about the sustainability of unbridled economic growth. In light of these concerns, the authors analyse a range of economic and environmental issues, and propose policy recommendations that would enhance sustainable economic growth. The book covers a variety of issues related to economic development, trade, energy and climate change, and focuses on countries in the Asia-Pacific region including Australia, Thailand, Papua New Guinea and Fiji.
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Chapter 2: Computable General Equilibrium Models

John Asafu-Adjaye and Renuka Mahadevan


____________________________________________________ 2.1 INTRODUCTION A model can be defined as a simplified representation of reality. Parallels can be drawn between a model and a map. Like maps, models have different possible objectives and uses and it is difficult to have a model that can serve a wide variety of uses (Robinson, 1991). Models are an abstraction from reality. In view of the fact that the real world is complex, abstraction is required in order to focus on the key variables. Thus, the level of complexity in a model is dependent on the purpose for which it is to be used. According to Meadows et al. (1972, p. 20), A model is simply an ordered set of assumptions about a complex system... The model we have constructed is, like every other model imperfect, oversimplifiued and unfinished. Costanza et al. (1995) have suggested that three criteria of models should be: realism, precision and generality. Realism is achieved by simulating the system behaviour in a qualitatively precise way, while precision is achieved by doing so in a quantitatively precise way. Finally, generality is achieved by representing a broad range of systems’ behaviours in the same model. However, in general, it is virtually impossible for a single model to capture all three criteria because there are trade-offs amongst them. For example, increasing precision will be at the expense of realism and vice versa. Models are valuable tools that can be used to assist decision making by isolating key aspects of a complex system and allowing the...

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