Dynamic Multi-Sector CGE Modeling: Reply to Assmann and Hogrefe

Abstract

Farmer and Wendner (2004) consider the sensitivity of policy effects, as implied by dynamic multi-sector computable general equilibrium models, with respect to the specification of capital and investment aggregation. They demonstrate that (small) differences in the specification of capital and investment aggregation may yield large differences in the policy effects predicted by dynamic multi-sector computable general equilibrium models. Assmann and Hogrefe, AH in the following, conclude that Farmer and Wendner's (FW) result indeed also holds in different model frameworks. However, they criticize FW's model that is based on the ``puzzling'' value capital approach. Here, FW reply to AH's critique.