Description of the model

The GEM-E3 (World and Europe) model is an applied general equilibrium model, simultaneously representing World regions or European countries, linked through endogenous bilateral tradeflows and environmental flows. The European model is including the EU countries, the Accession Countries and Switzerland. GEM-E3 aims at covering the interactions between the economy, the energy system and the environment.

The model has the following general features:

1. Its scope is general in two terms: it includes all simultaneously interrelated markets and represents the system at the appropriate level with respect to geography, the sub-system (energy, environment, economy) and the dynamic mechanisms of agent's behaviour.
2. It formulates separately the supply or demand behaviour of the economic agents which are considered to optimise individually their objective while market derived prices guarantee global equilibrium
3. It considers explicitly the market clearing mechanism and the related price formation in the energy, environment and economy markets: prices are computed by the model as a result of supply and demand interactions in the markets and different market clearing mechanisms, in addition to perfect competition, are allowed
4. The model is simultaneously multinational (for the EU or the World) and specific for each country/region; appropriate markets clear European/World wide, while country/region-specific policies and distributional analysis are supported
5. Although global, the model exhibits a sufficient degree of disaggregation concerning sectors, structural features of energy/environment and policy-oriented instruments (e.g. taxation). The model formulates production technologies in an endogenous manner allowing for price-driven derivation of all intermediate consumption and the services from capital and labour. In the electricity sector, the choice of production factors can be based on the explicit modelling of technologies. For the demand-side the model formulates consumer behaviour and distinguishes between durable (equipment) and consumable goods and services.
6. The model is dynamic, recursive over time, driven by accumulation of capital and equipment. Technology progress is explicitly represented in the production function, either exogenous or endogenous, depending on R&D expenditure by private and public sector and taking into account spillovers effects.
7. The model formulates pollution permits for atmospheric pollutants and flexible instruments allowing for a variety options, including: allocation (grandfathering, auctioneering, etc.), user-defined bubbles for traders, various systems of exemptions, various systems for revenue recycling, etc.

The GEM-E3 model is built in a modular way around its central CGE core. It supports defining several alternative regimes and closure rules without having to re-specify or re-calibrate the model. The most important of these options are:

1. Capital mobility across sectors and/or countries
2. Flexible or fixed current account (with respect to the foreign sector)
3. Flexible or fixed labour supply
4. Market for pollution permits national/international, environmental constraints
5. Fixed or flexible public deficit
6. Perfect competition or Nash-Cournot competition assumptions for market regimes

For a full description of the model: download the model description (1.2 MB)

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Comments on the content: Denise Van Regemorter
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Most recent update: August 2, 2005