Title: Solving a Large-Scale Intertemporal Applied General Equilibrium Model

Authors: Michael Malakellis

Abstract

Intertemporal Computable General Equilibrium (CGE) models have the potential to
quantify the implications of sectoral and temporal linkages which are often crucial for
understanding the effects of economic shocks. However, such models will prove to be of
practical use for policy analysis only if accurate solutions can be obtained at
reasonable cost. Often, the usefulness of intertemporal CGE models for policy analysis is
diminished because the degree of economic detail incorporated is compromised in order to
maintain computational tractability.

The purpose of this paper is to describe how Euler's method may be used to solve
large-scale intertemporal CGE models without compromising significantly on the type and
degree of economic detail modelled. In particular, there is no need to restrict the
number of costate variables (e.g., by assuming that capital stocks are homogeneous) nor
to assume that the solution will always be interior.