Assessing the Robustness of Results with Respect to the Functional form in a Dynamic General Equilibrium Model

Adel Barkhordar, Zahra; Saboohi, Yadollah

doi:10.22059/jte.2014.52443

Assessing the Robustness of Results with Respect to the Functional form in a Dynamic General Equilibrium Model

Document Type : Research Paper

Authors

Zahra Adel Barkhordar ¹

Yadollah Saboohi ²

¹ PhD Candidate, Energy Systems Engineering, Department of Energy Engineering, Sharif University of Technology

² Professor, Energy Systems Engineering, Department of Energy Engineering

10.22059/jte.2014.52443

Abstract

Sensitivity analysis with respect to the functional forms provides estimates of the uncertainties involved in choosing a specific functional structure. This is vital in CGE modeling where it is conventional to take elasticities from other studies. In the present study, the robustness of model results with respect to the functional form is checked. In one scenario, the production function is represented by CES function (a globally regular functional form) and in the other by Translog function (a flexible functional form). The model results are found to be sensitive to the chosen functional form, especially in the oil sector. Thus, only the functional forms that historical data approve their validity for Iran should be employed in CGE models of Iran. One of the main sources of information employed in general equilibrium modeling is the functional structure.
JEL Classification: C68، E23، E27، D04

Keywords

flexible functional form

General Equilibrium Model

robustness of results