Linking a Dynamic CGE Model and a Microsimulation Model: Climate Change Mitigation Policies and Income Distribution in Australia
Melbourne Institute Working Paper No. 03/09
Date: March 2009
This paper extends the ‘top-down’ framework, introduced by Robilliard et al. (2001), to link a computable general equilibrium (CGE) model to a microsimulation model. The proposed approach allows the linking of a microsimulation model to a dynamic, and not simply a static, CGE model by enabling the microsimulation model to reproduce the predicted long-term changes in the base population. The approach relies on altering the sample weights in order to reproduce population projections and the changes in employment as estimated by the CGE model. A particular effort is made to discuss the limitations arising from the various assumptions made in both models as well as in the linking process. As an illustrative example, the approach is applied to assess the effects of climate-change mitigation policies in Australia from 2005 to 2030 at five-yearly intervals.