In the light of recent economic crises the necessity of more detailed and especially financial investigations for economic policy makers and the majority of economic agents surged imperatively around the world. However, one quite popular analysis instrument used in many countries, unfortunately in Germany and some other members of the European Union seems to be lacking its deserved attention. Social Accounting Matrices (SAMs) and their respective Computable Equilibrium Models (CGEs) represent a useful tool for profound and targeted economic analysis worldwide.
Basically, observed and selected data of a base year is accommodated into a matrix presentation taking into account the double-entry accounting principle of revenues and expenditures revealing cross-institutional and cross-sectorial information or the mix of both. The underlying principle is to connect the producing part of an economy with the national institutions and the rest of the world in order to be able to conduct a significant analysis through a Computable Equilibrium Model. This model is calibrated and computed to generate the general equilibrium of an economy with the help of (mostly neo-classical) economic equations and assumptions reproducing the same values as observed in reality. In consequence, it is possible to perform an economic experiment predicting the reactions of the economy under consideration when facing those exogenous shocks.
Until now, most SAMs and therefore CGEs have focused on a too limited presentation of the economies ignoring completely the financial part of it, even though this is an essential and in modern economies decisive part of economic life. This paper aims to transmit a step by step illustration of the elaboration of a Financial Social Accounting Matrix (FSAM) and the gradual development of an economic CGE model written in GAMS which makes use of the same data. In the end, an experiment is conducted taking into account the German Share Index DAX and a multitude of macroeconomic equilibrium equations.
Table of Contents
1. Introduction
2. Building the FSAM
2.1 Classification
2.2 Goods & Services
2.3 Production
2.4 Income Generation
2.5 Allocation of Primary Income
2.6 Secondary Distribution of Income
2.7 Use of Disposable Income
2.8 Capital Account and Gross fixed Capital Formation
2.9 Financial Flows and Rest of the World
3. Working with Real Data and Assumptions
4. An Alternative FSAM Presentation
5. A Computable General Equilibrium Model Application
5.1 Statement of Problem
5.2 Macroeconomic Assumptions
5.2.1 Sectors’ Behavior
5.2.2 Institutions’ Behavior
5.2.3 Definition of Equilibrium
5.3 Model Calibration
5.4 Original Equilibrium
5.5 Economic Experiment and New Equilibrium
5.6 Comparison of Equilibria
6. Résumé and Conclusions
7. Appendix
8. References
Objectives & Core Topics
This paper aims to provide a comprehensive, step-by-step guide on constructing a Financial Social Accounting Matrix (FSAM) and developing a Computable General Equilibrium (CGE) model, utilizing the German economy in 2009 as a reference case to analyze the impact of stock market fluctuations on institutional investment behavior.
- Elaboration of a Financial Social Accounting Matrix (FSAM)
- Development of a CGE model using GAMS software
- Analysis of the relationship between the German Stock Index (DAX) and institutional investment decisions
- Integration of financial and real economy accounts for macroeconomic policy analysis
Excerpt from the Book
2. Building the FSAM
The construction of the Financial Social Accounting Matrix (FSAM) can be quite a time-consuming undertaking, because there is no global standard on its final design yet. There has been done a whole lot more research with applications of regular Social Accounting Matrices (SAMs) though which give lead to the construction of the FSAM. Just recently, a variety of economists have proposed different implementations and designs. The main idea of the FSAM is to include the financial accounts of an economy to get a better impression of who is paying or receiving what kind of financial flow. Besides of having only the goods market the financial market is also included. As a consequence, there can be done a series of more detailed investigations giving rise to more sophisticated recommendations to economic policy makers. (MPRA 2009)
In the following I will explain the construction of a FSAM (Figure 1) step by step which is based on the recommendation of the Leadership group on Social Accounting Matrices by the European Commission. (European Commission 2003)
Summary of Chapters
1. Introduction: This chapter highlights the necessity of detailed financial investigations for economic policy and introduces the FSAM and CGE model as powerful, yet underutilized tools for economic analysis in Germany.
2. Building the FSAM: This section provides a detailed, step-by-step methodology for constructing a FSAM based on European Commission standards, explaining the various accounts and their interdependencies within the circular flow of funds.
3. Working with Real Data and Assumptions: This chapter outlines the practical requirements for filling the FSAM with real-world economic data, emphasizing the importance of consistency across data sources and the use of an Input-Output Matrix as a preliminary check.
4. An Alternative FSAM Presentation: This chapter introduces a simplified, alternative design for the FSAM specifically tailored to the requirements of the GAMS economic model application.
5. A Computable General Equilibrium Model Application: This section details the development of a GAMS-based CGE model, establishing macroeconomic assumptions, sectoral and institutional behaviors, and defining the conditions for general equilibrium to facilitate economic experiments.
6. Résumé and Conclusions: The final chapter summarizes the findings, discusses the potential for further model sophistication, and reaffirms the value of FSAMs and CGEs as indispensable tools for policymakers in the Euro Area.
Keywords
Financial Social Accounting Matrix, FSAM, Computable General Equilibrium, CGE, GAMS, Germany, Economy 2009, DAX, Macroeconomic modeling, Institutional investment, Circular flow of funds, Input-Output Analysis, Financial markets, Economic policy, Equilibrium conditions
Frequently Asked Questions
What is the primary purpose of this research?
The research aims to create a functional Financial Social Accounting Matrix (FSAM) for Germany and demonstrate how to build and calibrate a Computable General Equilibrium (CGE) model to perform economic policy experiments.
What are the main thematic areas covered?
The work covers the structural construction of a FSAM, the integration of real-world data from statistical bureaus, the formulation of neoclassical economic assumptions for sectors and institutions, and the practical implementation of these concepts using GAMS.
What is the central research question?
The study investigates the degree to which the German Stock Index (DAX) influences the financial investment decisions of institutional actors, specifically regarding their allocation between shares and bank deposits.
Which scientific methodology is employed?
The author employs the construction of a Social Accounting Matrix (SAM) extended by financial accounts (FSAM) and utilizes a Computable General Equilibrium (CGE) framework to model economic behavior and simulate shocks.
What does the main body of the work address?
The main body focuses on the theoretical breakdown of the FSAM, the empirical process of filling it with data from Destatis and the Bundesbank, and the translation of this data into a system of equations in GAMS to analyze equilibrium states.
Which keywords characterize this study?
Key terms include FSAM, CGE, GAMS, DAX, circular flow of funds, and institutional investment, among others related to macroeconomic modeling.
How does the DAX performance affect different institutions in the model?
The model shows that when DAX performance improves, institutions increase their investment in shares, with non-financial enterprises showing the highest sensitivity, while households are the least affected.
What are the limitations of the current CGE model?
The model is limited by fixed parameters for institutional savings behavior, meaning that changes in the DAX do not trigger feedback effects on total savings or the overall price of capital in the current simulation.
Why is the FSAM design significant?
The FSAM is significant because it includes financial accounts, allowing for a more complete observation of the circular flow of money than a standard SAM, which is critical for analyzing modern financial crises.
- Arbeit zitieren
- Jens Helbig (Autor:in), 2013, From an Elaborated Financial Social Accounting Matrix (FSAM) to a full Computable General Equilibrium (CGE) Model for Germany, München, GRIN Verlag, https://www.grin.com/document/266314
