Applied General Equilibrium Modelling ANNARES, STAGE and R23 Models

© Scott McDonald

R23 Model

The R23 model (r region country, two sector, and three goods) is a simple and static global computable general equilibrium (CGE) model. It generalizes and extends a user-friendly fiscal tool developed at the World Bank for single country analysis - the 1-2-3 model (1 country, with 2 producing sectors, and 3 goods) - by providing a global dimension to its accessible analysis of the impact of macroeconomic policy and external shocks in developing countries, including those with severe data constraints. The within country transactions derive from the  1-2-3 model (see de Melo and Robinson, 1989; Devarajan et al., 1990; Devarajan and Go, 2003) while the global dimension derives from the GLOBE model (McDonald et al., 2007; McDonald and Thierfelder, 2012).

While simple, the R23 model allows for a forecast of welfare measures and poverty outcomes consistent with a set of macroeconomic policies in the context of a simple global general equilibrium model. For a given set of macroeconomic policies, R23 generates a set of wages and employment, relative prices, nominal and real exchange rates and internal and external balances that are mutually consistent in the presence of global interdependencies. The projected changes can then be inputted into household models to estimate the policy impacts on each household in the samples in terms of welfare and income distribution.

Each region in the model has its own numéraire price, typically the consumer price index (CPI), and a nominal exchange rate, while the model as a whole requires a numéraire, which is an exchange rate index for a number of reference regions.

A distinctive feature of the model is the use of a 'dummy' region, known as Globe, that allows for the recording of inter-regional transactions where either the source or destination are not identified. Examples of such transactions include trade and transportation margins, migrant remittances and multilateral aid transfers. The Globe construct provides a general method for dealing with any transactions data where full bilateral information is missing.

The R23 model was developed by Scott McDonald and Karen Thierfelder while the R23 database was developed by Scott McDonald, Karen Thierfelder and Terrie Walmsley.

The model code will be made open source once the final versions have been delivered to the World Bank.

Model Technical Document

R23 User Guide

Database Technical Document

Model and Database