Modeling Intertemporal General Equilibrium: An Application to Austrian Commercial Policy

We present a multi-sector CGE model featuring forward looking investment and savings behavior within an intertemporal optimization framework. Thus, the model captures several of the intertemporal effects of commercial policy that have been stressed by recent literature on current account adjustment. We argue that pursuing a simulation approach in addressing these issues is warranted by certain limitations and ambiguities of the analytical literature. In addition to presenting the details of the model structure, the paper addresses calibration issues relating to intertemporal parameters. The model is calibrated to a microconsistent data set for the Austrian economy. Finally, the paper features an application of the model to a simple tariff liberalization scenario.