Rational expectations for large CGE models: A practical algorithm and a policy application

We describe a simple iterative method for solving large dynamic CGE models under rational expectations. Details are given for Australia's MONASH model but the approach applies to a wide range of CGE models. The method is automated in the RunMONASH Windows software, putting CGE modelling under rational expectations within the reach of non-specialist modellers. We provide an illustrative application in which MONASH results under rational expectations are compared with results under static expectations. The application and supporting software can be downloaded. Results from the application are interpreted in terms of elementary economic mechanisms.