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Two macroeconomic models for Denmark; the macroeconometric model ADAM (Annual Danish Aggregate Model) and the dynamic CGE-model DREAM (Danish Rational Economic Agents Model) are compared.
Two macroeconomic models for Denmark; the macroeconometric model ADAM (Annual Danish Aggregate Model) and the dynamic CGE-model DREAM (Danish Rational Economic Agents Model) are compared. An analytical model that contains as special cases a representation of the stationary state in each of the two large simulation models is set up. Analytical multipliers are compared for three different types of policy. In simulations the entire dynamic path of the marginal effects of the same policy changes are compared. Our conclusions are: 1) The qualitative long run effects are similar in the two models. 2) The quantitative effects are in most cases comparable in the long run. 3) The dynamic evolutions of the multipliers are surprisingly similar. A major contributor to quantitative differences is the dissimilarity of the wage curves in the two models: A negative supply effect is the outcome of an increase in the tax burden in DREAM whereas no supply effect is present in ADAM. Second, the price-wage mechanism in ADAM is much stronger than in DREAM. Even if the modelling of private consumption differs significantly between the models, the evolutions of total private consumption in the two models are very similar for all three policy-simulations.