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Simulating Distributional Impacts of Macro-dynamics : Theory and Practical Applications

Olivieri, Sergio; Radyakin, Sergiy; Kolenikov, Stainslav; Lokshin, Michael; Narayan, Ambar; Sanchez-Paramo, Carolina;


October 1, 2014

The automated DEC poverty tables (ADePT) simulation module, one of several modules in the ADePT platform, offers a useful methodological framework for analysts interested in measuring how macroeconomic projections may affect households. The module’s approach falls between simple extrapolation and the most sophisticated methods such as top-down or top-down-up models based on linking household data with computable general equilibrium (CGE) models. By using simple macroeconomic projections as the macro-linkages to a micro-behavioral model built from household data, the model captures the complexities that influence how macro impacts are transmitted to households. The ADePT simulation module is an improvement over existing approaches because with minimal data and computational requirements it can evaluate in advance the distributional impacts of macroeconomic projections. By focusing on adjustments in employment and earnings, non-labor income, and price changes, it accounts for multiple transmission mechanisms and captures micro-level impacts across the entire income distribution. Using existing macroeconomic data and household surveys, the ADePT simulation module helps in identifying and profiling those groups of individuals - defined by characteristics such as occupational sector, location, and education level who are most likely to suffer income losses as a consequence of the change. This manual is organized in two parts. Part one covers the motivation, overview, and illustrations of the method. Part two describes each step the user must follow to create or obtain proper macro- and microeconomic inputs required for the simulation. It also explains how to enter these inputs into the module and the different options available for tailoring simulations.

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