Update of elasticities in the HERMIN model
10.21
2010
TML supported TNO in developing a regional CGE model, calculating shadow prices to evaluate investments in EU cohesion policy. TML improved the model by approximating shadow prices and improving the accuracy of the results.
This study compared and contrasted the HERMIN model and a regional CGE model for five European countries (Germany, Poland, Slovakia, Czech Republic, and Hungary) to calculate spillover elasticities. These elasticities were applied within the HERMIN model and used to determine the impact of EU cohesion policy investments. An approach was developed to determine the spillover elasticities of the CGE model using real investment projects. The central idea of the project was that the impact of investments in physical infrastructure, research, and human capital on innovation (measured in Total Factor Productivity) should be evaluated by a CGE model and micro-founded. We compared the two models and took steps to improve consistency between them.
TML supported project leader TNO in further developing the CGE model and calculating shadow prices. Shadow prices are defined as a marginal change in the welfare indicator relative to a change in a unit of a production factor, good, or service. These figures can be used for applications in cost-benefit analyses (CBA).
TML approximated shadow prices, based on conversion factors, determined directly from small shocks in input factors or prices in the model. We also proposed several improvements to the CGE model to avoid incorrect results. These proposals included
The CGE model used in this study was a prototype of the RHOMOLO model, now in full development at the European Commission's Joint Research Centre (JRC). TML was not involved in the further development of the RHOMOLO model after this study and currently has no access nor right to use the model.
For questions on the use of RHOMOLO, please refer to the RHOMOLO development team at JRC.
This study compared and contrasted the HERMIN model and a regional CGE model for five European countries (Germany, Poland, Slovakia, Czech Republic, and Hungary) to calculate spillover elasticities. These elasticities were applied within the HERMIN model and used to determine the impact of EU cohesion policy investments. An approach was developed to determine the spillover elasticities of the CGE model using real investment projects. The central idea of the project was that the impact of investments in physical infrastructure, research, and human capital on innovation (measured in Total Factor Productivity) should be evaluated by a CGE model and micro-founded. We compared the two models and took steps to improve consistency between them.
TML supported project leader TNO in further developing the CGE model and calculating shadow prices. Shadow prices are defined as a marginal change in the welfare indicator relative to a change in a unit of a production factor, good, or service. These figures can be used for applications in cost-benefit analyses (CBA).
TML approximated shadow prices, based on conversion factors, determined directly from small shocks in input factors or prices in the model. We also proposed several improvements to the CGE model to avoid incorrect results. These proposals included
- an update in the calculation of the social indicator,
- recalibration of the regional trade balances, and
- some minor changes to the calibration of the model.
The CGE model used in this study was a prototype of the RHOMOLO model, now in full development at the European Commission's Joint Research Centre (JRC). TML was not involved in the further development of the RHOMOLO model after this study and currently has no access nor right to use the model.
For questions on the use of RHOMOLO, please refer to the RHOMOLO development team at JRC.
