The structure and working of MSG-5, an applied general equilibrium model of the Norwegian economy

Abstract

Publisher Summary The multisector growth (MSG)-model is an applied general equilibrium (AGE) model that has been regularly used in long-term planning by the Norwegian Ministry of Finance. This chapter presents the last version of MSG, MSG-5. However, MSG-5 does not contain an accurate description of the formal equation system. The main intention is to provide instead intuition into the way by which the different mechanisms and effects in a disaggregated general equilibrium model such as MSG simultaneously determine the pattern of relative prices and industrial expansion. The chapter presents a somewhat stylized version of the actual implemented model. It explains the working of the model is by discussing the effects of an increase in the capital stock. The chapter focuses on the way in which the modeling of external trade affects the results. It also explains the way in which impacts of capital deepening on the structure of relative prices and industrial expansion are influenced by the degree of substitutability between Norwegian and foreign products.

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