- Type Computable general equilibrium model
What problem it solves
WEGDYN belongs to the class of macroeconomic models, which depict the whole economy, separated into different production sectors and demand agents. Specifically, WEGDYN is a computable general equilibrium (CGE) model. The basic idea behind CGE models is that all markets are in equilibrium (i.e. supply=demand) and this “general equilibrium” can be disturbed by an intervention (e.g. by an enforced switch to a new technology, or by a policy intervention), triggering relative price changes as well as demand (quantity) adjustments until a new general equilibrium emerges. From the difference between new and old equilibrium we draw conclusions on how the economy reacts to the intervention.
The main strength of this approach lies in the top-down depiction of relative price and quantity effects based on empirical estimations of behavioral responses (i.e. elasticities of substitution). While bottom-up economic models (e.g. partial equilibrium) focus on individual (groups of) economic agents (e.g. energy producers/consumers), general equilibrium models take into account all relevant economic agents of the economic system under consideration (domestic and foreign production sectors and private/public households). Economic agents are assumed to behave in a profit-/utility-maximizing way, given certain input/budgetary as well as technological constraints. These assumptions can be relaxed in several dimensions (e.g. rigid wages in labor markets). CGE models take a long-run perspective, which warrants that every stage of the optimization procedure fulfills long-run macroeconomic identities (e.g. aggregate savings equal aggregate investment levels or exports of a country match imports of another).
CGE models are widely applied in manifold research areas due to their comparably low data needs (single-year social accounting matrix and satellite data on economic, societal, environmental factors). In general, CGE models can be single-country models (such as small open economy [SOE] models), but also multi-regional, thereby explicitly taking into account foreign trade effects (e.g. international competition or “carbon leakage”). WEGDYN offers several versions. It is available as a SOE model for Austria (WEGDYN_AT), and also as a global multi-regional version (WEGDYN, calibrated to the GTAP Database (Aguiar et al., 2016)). Both versions can be run in a static-comparative as well as in a recursive-dynamic mode (see Bednar-Friedl et al., 2012; Bachner et al., 2019a for the respective static versions, and Mayer et al., 2019 for the recursive-dynamic version).
The representation of the energy system in the WEGDYN CGE model is based on the GTAP Power Database (Peters, 2016), which distinguishes various fossil and renewable electricity generation technologies, as well as Nuclear. The temporal resolution of CGE models is yearly, constraining the model’s ability to capture intra-annual specificities of individual technologies (e.g. intermittency). This weakness can be overcome, though, by linking WEGDYN to other (more detailed) energy models.