Solution Method

Abstract

As explained in chapter 1 intertemporal CGE models such as ORANI-INT have the potential to be powerful tools for economic analysis. However, because of their size and complexity detailed intertemporal CGE models will be of practical use to policy-makers only if accurate solutions can be obtained at reasonable cost. In a survey of CGE modelling, Manne (1985) observed that for the purposes of computational tractability, the dimensions of intertemporal CGE models are typically reduced by adopting two assumptions; first, that “capital stocks are homogeneous (not specific to sectors or to regions), and that there are only a few types of capital stock variables” and second, that there are always interior solutions. The purpose of this chapter is to describe how a hybrid of the Euler and Newton-Raphson methods can be used to solve ORANI-INT without resorting to such dimensionality reduction schemes.