$TITLE Model M41: Small open economy 2x2 SCALARS PE2 Export price of good 2 /0.99/ PM1 Import price of good 1 /1.01/ PE1 Export price of good 1 /1/ PM2 Import price of good 2 /1/ TM2 Import tariff for good 2 /0/; POSITIVE VARIABLES X1 ! Activity level for sector X1, X2 ! Activity level for sector X2, E1 ! Activity level for sector E1, E2 ! Activity level for sector E2, M1 ! Activity level for sector M1, M2 ! Activity level for sector M2, W ! Activity level for sector W (Hicksian welfare index), P1 ! Price index for commodity X, P2 ! Price index for commodity Y, PL ! Price index for primary factor L, PK ! Price index for primary factor K, PW ! Price index for welfare (expenditure function), PFX ! Read exchange rate index, CONS ! Income definition for CONS; EQUATIONS PRF_X1 Zero profit for sector X1 PRF_X2 Zero profit for sector X2 PRF_E1 Zero profit for sector E1 PRF_E2 Zero profit for sector E2 PRF_M1 Zero profit for sector M1 PRF_M2 Zero profit for sector M2 PRF_W Zero profit for sector W (Hicksian welfare index) MKT_X1 Supply-demand balance for commodity X1 MKT_X2 Supply-demand balance for commodity X2 MKT_PFX Supply-demand balance for commodity PFX MKT_L Supply-demand balance for primary factor L MKT_K Supply-demand balance for primary factor L MKT_W Supply-demand balance for aggregate demand I_CONS Income definition for CONS; * Zero profit conditions PRF_X1.. 150 * PL**(2/3) * PK**(1/3) =G= 150 * P1; PRF_X2.. 50 * PL**(2/5) * PK**(3/5) =G= 50 * P2; PRF_E1.. 50 * P1 =G= 50 * PFX * PE1; PRF_E2.. 50 * P2 =G= 50 * PFX * PE2; PRF_M1.. 50 * PFX * PM1 =G= 50 * P1; PRF_M2.. 50 * PFX * PM2 * (1+TM2) =G= 50 * P2; PRF_W.. 100 * P1**0.5 * P2**0.5 =G= 100 * PW; * Market clearance conditions MKT_X1.. 150 * X1 + 50 * M1 =G= 50 * E1 + 100 * W * PW/P1; MKT_X2.. 50 * X2 + 50 * M2 =G= 50 * E2 + 100 * W * PW/P2 ; MKT_PFX.. 50 * E2 * PE2 + 50 * E1 * PE1 =G= 50 * PM2 * M2 + 50 * PM1 * M1; MKT_W.. 200 * W =G= CONS / PW; MKT_L.. 120 =G= 100 * X1 * P1/PL + 20 * X2 * P2/PL; MKT_K.. 80 =G= 50 * X1 * P1/PK + 30 * X2 * P2/PK; * Income balance I_CONS.. CONS =E= 120 * PL + 80 * PK + 50 * PM2 * PFX * TM2 * M2; MODEL ALGEBRAIC /PRF_X1.X1, PRF_X2.X2, PRF_E1.E1, PRF_E2.E2, PRF_M1.M1, PRF_M2.M2, PRF_W.W, MKT_X1.P1, MKT_X2.P2, MKT_PFX.PFX, MKT_L.PL, MKT_K.PK, MKT_W.PW, I_CONS.CONS /; * Check the benchmark (again): X1.L =1; X2.L =1; E2.L =0; M1.L =0; E1.L =1; M2.L =1; W.L =1; P1.L =1; P2.L =1; PFX.L =1; PK.L =1; PW.FX =1; PL.L =1; CONS.L =200; SOLVE ALGEBRAIC USING MCP; ALGEBRAIC.ITERLIM = 2000; TM2 = 0.05; SOLVE ALGEBRAIC USING MCP; TM2 = 0.10; SOLVE ALGEBRAIC USING MCP; TM2 = 0; PE1 = 1.2; PM1 = 1.21; SOLVE ALGEBRAIC USING MCP;