11–15.01.2016 Scientific Seminars on General Equilibrium Models

The seminars were attended by the Department's staff members Andrey Zubarev, Kristina Nesterova, Yevgeny Goriunov, and Maria Kazakova (Deputy Head of the Department).
 
As part of his visit, on 12 January 2016 Dr Kotlikoff, together with Fellows of Boston University Cet Bensell and Guillermo LaGuarda, hosted a workshop at the Gaidar Institute titled Can Russia Go it Alone? Understanding the Impact of Sanctions on the Russian Economy. They spoke of the results of modeling the effects of economic sanctions on the Russian economy in the framework of the computable general equilibrium model (or CGE model) with overlapping generations, plotted for six regions/countries, namely the USA, Japan, Europe, China, Asia, and Russia. This approach is applied in modeling the effects, over time, of demographic changes and economic policy on the growth of real wages, interest rates and economic growth indices in these countries/regions.

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The impact of the sanctions on Russia's economy is modeled by the authors by augmenting their model by an autarky based on the following assumptions:
•    Absence of trade,
•    Closure of capital markets,
•    Plunge of oil prices (by 75% on the annual average oil price index for 2013),
•    Russia owns all capital and oil in the country,
•    The government is faced with a fiscal deficit, which is created by the necessity of funding the transfer program; this deficit is covered by taxes and debt.

According to the authors, the model of the impact of sanctions on the Russian economy yielded the following main results:
•    The impossibility to import capital,
•    Growth of interest rates and decline of wages,
•    Increased working hours by individuals,
•    The necessity of covering the loss of oil and gas revenues by taxes,
•    Growth of the tax burden on the current generations.  

Besides, the authors demonstrate that:
•    The impact of sanctions on the economy is on the whole limited,
•    Russia is a net creditor and has a positive balance of current operations account,
•    Foreign assets compensate in part for the unfavorable conditions.

As a target for further studies, the authors pointed to an estimation of the input of prices as compared to the input of trade, as well as a more accurate calibration of foreign assets and trade flows.

During these scientific seminars, the Department's researchers also discussed the areas for further studies to be conducted as part of the 2016 project 'Assessment of the Impact of Environmental Pollution on the Russian Economy in the Framework of the General Economic Equilibrium Model'. The project envisages the elaboration of an overlapping generations model for the purpose of analyzing the economic policies aimed at greenhouse gas emission reduction. This model distinguished between two types of energy sources – hydrocarbons and 'green' energy types. The model makes it possible to analyze the impact of taxes, hydrocarbon extraction quotas and the green energy sector on the hydrocarbon extraction level and the behavior of hydrocarbon prices; to study the effects, on the processes of global warming, of alternative economic policy measures and the redistribution within and between generations of the burden and benefits of the measures designed to stop global warming; to develop reliable economic incentives for environmental pollution reduction, including those designed to be effective in conditions of high uncertainty of the ultimate scale of the negative impact of global warming on business activities. The preliminary results on the implementation of this project were presented by Dr Laurence J. Kotlikoff at the Gaidar Forum 'Russia and the World: Looking to the Future' on 14 January 2016 at the expert discussion 'Costs and Benefits of Low-carbon Development, Modeling of Energy and Environment'.

Then the Department's researchers discussed the model's adjustment and upgrading in the framework of the 2015 project 'Modeling Russia's Fiscal Policy as Part of the General Economic Equilibrium Approach', and further research aimed at estimating the long-term budget gap in the Russian Federation, with subsequent publication of its results in the foreign journals covered by Scopus and WoS.

Besides, in the framework of his visit, on 15 January, 2016 Dr Kotlikoff delivered a lecture at the International College of Economics and Finance (ICEF) of the National Research University Higher School of Economics (NRU HSE) titled Measuring True Inequality in the United States.