Representative versus real households in the macro-economic modelling of inequality

Models for integrating micro-economic data on real households into modelling

This paper presents an alternative, top-down method for integrating micro-economic data on real households into modelling. It relies on a set of assumptions that yield a degree of separability between the macro, or CGE, part of the model and the micro-econometric modelling of income generation at the household level. This method is used to analyze the impact of a change in the foreign trade balance, and the resulting change in the equilibrium real exchange rate, in Indonesia (before the Asian financial crisis). A comparison with the standard RHG approach is provided.

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Representative versus real households in the macro-economic modelling of inequality