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Chapter 20 Aggregation and calibration

In the previous chapter we discussed how the final version 3 GTAP data base was assembled. This data base is extremely large. For example, just one of the arrays associated with intermediate usage of commodities is of dimension: 37 x 37 x 30 = 41,070 elements. For this reason, the resulting model is also extremely large. Indeed for most researchers, a model based on the fully disaggegated data base is simply too demanding of computer memory and disk space. As a result, most GTAP users work with aggregations of the data base. Procedures for aggregation are discussed in section 20.1. Once the data base and elasticities have been aggregated, there remains the problem of calibration. Fortunately, the extent of this problem is minimized by solving the non-linear GTAP model via its linearized representation. This approach has the advantage of not requiring calibration of the so-called " shift parameters " in the production and utility functions, as they are embedded in the cost and expenditure shares which appear in the differential form of the model. In the case of the CES functional form, where the shares and the constant substitution elasticity parameter are all that appear, no further calibration is required. However, in the case of the CDE functional form used to represent private household demands, a further calibration step is required. This is discussed in section 20.2.