Integrated Computable Simulation Approach

Conventionally, the analysis of macro-economic shocks and the analysis of income distribution and poverty require very different methodological techniques and sources of data. Over the last decade however, the natural divide between both approaches has diminished, as evaluating the impact of macro-economic shocks on poverty and income distribution within a CGE framework complemented by household survey data has flourished. This paper focuses on explicitly integrating into a CGE model each household from a nationally representative household survey. The aim of this paper is threefold. First, we show that explicitly modelling each household in the CGE model addresses Kirman's critique (1992) and overcomes the strong micro-economic assumption of representative agent. Second, we respond, albeit in a simple way, to the recommendation of Bourguignon and Perreira (2003) to integrate ―real‖ households within a CGE framework rather than using representative households. Third, by providing applications to Nepal and the Philippines, we demonstrate that this technique is straightforward to implement and requires only a standard CGE model and a nationally representative household survey with information on household income and consumption.