Economic Equilibrium Analysis
Thomas F. Rutherford
University of Colorado
November 18, 2002
GAMS/MPSGE: A Mathematical Programming System for
General Equilibrium Analysis
• specifically designed for applied general equilibrium analysis,
including both models represented as systems of equations
and those which involved complementarity between inequal-
ities and bounded variables.
• system is particularly useful for large, complex models based
on benchmark equilibrium datasets
• GAMS/MPSGE provides a highly structured framework for
inexperienced analysts, yet GAMS/MPSGE models can be
customized through the use of auxiliary variables.
Economic Models in the Policy Arena
Economic models produce results which can play a central role
in political dialogue.
Although economic models are based on formal mathematics, it
is important to recognize that the origins of economic analysis
are in social philosophy rather than physical science.
Everyone participates in economic transactions, so non-specialist
audiences can be influenced by populist appeals to “common
Economic Equilibrium Ideas
Agents in an economic model include consumers, producers and
governments, collectively representing all participants in market
transactions in a given economy.
A central concept in economic equilibrium models is that agents
optimize subject to constraints.
Systematic errors are logically inconsistent with individually ra-
A typical starting point for dynamic economic models is that
consumers are fully informed and hold consistent expectations
of the future. This approach differentiates economic models
from models of physical systems.
GAMS/MPSGE Equilibrium Framework
p ∈ RN Prices for all goods and factors (possibly indexed by com-
modity, sector, region, household, time period etc.)
y ∈ RM Production activity levels (also indexed)
M ∈ RH Income levels for each consumer in the model
Given Functions and Data
is a vector of producer prices, net (gross) of applicable taxes