Dependency of simulation results on the choice of numeraire

Abstract

There have recently been a growing number of computable general equilibrium (CGE) analyses for developing economies. These analyses often employ so-called structuralist CGE models equipped with fixed wage rates and unemployment (or an unlimited supply of labour). However, the assumption of fixed prices can cause a problem: simulation results can be dependent on the choice of numeraire. This problem is numerically examined with a simple structuralist CGE model. By analysing numerical examples, it was found that simulation results with structuralist CGE models can crucially depend on the choice of numeraire. The simulation results are different qualitatively as well as quantitatively by cases. The results suggest that the numeraire must be chosen carefully and simulation results should be evaluated in light of the chosen numeraire when we assume fixed prices in CGE models.