Documentation of the Applied Dynamic Analysis of the Global Economy (ADAGE) Model

Abstract

This paper documents the Applied Dynamic Analysis of the Global Economy (ADAGE) model. ADAGE is a dynamic computable general equilibrium (CGE) model capable of examining many types of economic, energy, environmental, climate-change mitigation, and trade policies at the international, national, U.S. regional, and U.S. state levels. To investigate policy effects, the CGE model combines a consistent theoretical structure with economic data covering all interactions among businesses and households. A classical Arrow-Debreu general equilibrium framework is used to describe economic behaviors of these agents. ADAGE has three distinct modules: International, US Regional, and Single Country. Each module relies on different data sources and has a different geographic scope, but all have the same theoretical structure. This internally consistent, integrated framework allows its components to use relevant policy findings from other modules with broader geographic coverage, thus obtaining detailed regional and state-level results that incorporate international impacts of policies. Economic data in ADAGE come from the GTAP and IMPLAN databases, and energy data and various growth forecasts come from the International Energy Agency and Energy Information Administration of the U.S. Department of Energy. Emissions estimates and associated abatement costs for six types of greenhouse gases (GHG) are also included in the model. This paper describes features of the ADAGE model in detail. It covers the economic theory underlying firm and household behavior, the specific equations and parameter estimates used in the model, and the dynamics that control transition paths from the model’s baseline economic-growth path to new economic equilibria in the presence of policies. The paper also discusses data sources used in ADAGE and presents baseline estimates of economic growth, energy production and consumption, and GHG emissions. †Research Triangle Institute (mross@rti.org). JEL Classification: C68

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