Capital and labour markets - COFFEE-TEA

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Model Documentation - COFFEE-TEA

Corresponding documentation
Previous versions
Model information
Model link
Institution COPPE/UFRJ (Cenergia), Brazil,
Solution concept General equilibrium (closed economy)
Solution method The COFFEE model is solved through Linear Programming (LP). The TEA model is formulated as a mixed complementary problem (MCP) and is solved through Mathematical Programming System for General Equilibrium -- MPSGE within GAMS using the PATH solver.

In the TEA model, the macroeconomic closure assumes full employment of the factors of production (capital and labour). Savings equals investment in the general equilibrium, but regionally the imbalances are closed by a surplus (or deficit) in the current account. An endogenous real exchange rate clears the current accounts and the capital account decreases exougenously in the long-run. Capital stock evolves at each period with the formation of new capital that depends on the investment level in that period and the capital depreciation rate, as described in Equation 1.

where: is the capital stock in region r and time t; is the investment in new capital goods in region r and time t; is the depreciation rate of capital in region r.

In the COFFEE model, capital and labour are represented throught technological parameters, such as capital expenditures (CAPEX) and operational and maintenance expenditures (OPEX).