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A forward calibration method for analyzing energy policy in new quantitative trade models

: Pothen, Frank; Hübler, Michael


Energy Economics 100 (2021), Art. 105352
ISSN: 0140-9883
Fraunhofer IMW ()
energy transition; Forward calibration; New quantitative trade theory; Regional model; Structural estimation

This article introduces a dynamic forward calibration method for New Quantitative Trade models, particularly a disaggregated Eaton and Kortum model, within a global computable general equilibrium framework. The model is parameterized based on distinct, consistent future development scenarios of the (Northwest) German energy transition with productivity growth and structural change derived through a complex scenario-creation process. The future development scenarios significantly affect European economies, particularly via the EU climate policy costs that significantly increase towards 2050. If (Northwest) Germany's energy transition fails, then its climate policy costs will increase extraordinarily. Structural change, energy efficiency improvements and nearly 100% electricity from renewables drastically reduce the costs.