Colleagues from the Czech University of Life Sciences Prague have created a dynamic general equilibrium (CGE) model, which serves as a methodological tool for modeling the role of agriculture in the Czech economy. The model is designed to simulate agricultural policy scenarios and allows for the assessment of their impacts on agricultural production, household consumption and welfare, public finances, external balance and economic growth.
The database is the Social Accounting Matrix (SAM) for 2018, compiled from the national accounts of the Czech Statistical Office. For the needs of the model, it was expanded to include a detailed breakdown of agricultural sector into agricultural subsectors, the division of households into agricultural and non-agricultural, and the separation of the foreign sector into the EU and the rest of the world. The GAMS software is used to calculate the equilibrium. The model includes interactions among production sectors (including eight agricultural subsectors), households, the government, firms, and the rest of the world. It uses hierarchical production functions (Leontief, CES, CET) and models household consumption behavior using LES functions. The dynamic component allows for monitoring capital accumulation and long-term effects of policies.
The model also includes Common Agricultural Policy instruments, such as direct payments, subsidies and customs duties. This allows for simulation of various scenarios – for example, the gradual or complete removal of selected supports.
The model allows for the assessment of the impacts of agricultural policy in six key areas:
- Direct production effects – impact on agricultural production, the structure of agricultural production and the balance of agricultural foreign trade.
- Indirect production effects – impact on other sectors of the economy, especially industry and services.
- Consumer effects – changes in consumption, utility and welfare of various types of households.
- Impacts on public finances – impact on state budget revenues and expenditures.
- Impacts on the balance of payments – impact on the balance with the European Union sector and other countries in the world.
- Impacts on economic growth – impact on investment, capital stock and GDP growth.
The document describing the CGE model can be downloaded here.