nep-cmp New Economics Papers
on Computational Economics
Issue of 2005‒03‒13
two papers chosen by
Stan Miles
York University

  1. An assessment of PenSim2 By Carl Emmerson; Howard Reed; Andrew Shephard
  2. Income risk and consumption inequality: a simulation study By Richard Blundell; Hamish Low; Ian Preston

  1. By: Carl Emmerson (Institute for Fiscal Studies); Howard Reed (Institute for Fiscal Studies); Andrew Shephard (Institute for Fiscal Studies)
    Abstract: The Department for Work and Pensions (DWP)’s Pensim2 model is a dynamic microsimulation model. The principal purpose of this model is to estimate the future distribution of pensioner incomes, thus enabling analysis of the distributional effects of proposed changes to pension policy. This paper presents the results of an assessment of Pensim2 by researchers at the IFS. We start by looking at the overall structure of the model, and how it compares with other dynamic policy analysis models across the world. We make recommendations at this stage as to how the overall modelling strategy could be improved. We then go on to analyse the characteristics of most of the individual modules which make up Pensim2, examining the data used and the regression and predictions used in each step. The results from this examination are used to formulate a set of short and medium-term recommendations for developing and improving the model. Finally, we look at what might become possible for the model over a much longer time frame – looking towards developing a ‘Pensim3’ model over the next decade or so.
    Keywords: pensions; microsimulation; policy analysis
    JEL: H55
    Date: 2004–12
  2. By: Richard Blundell (Institute for Fiscal Studies and University College London); Hamish Low (Institute for Fiscal Studies and Trinity College, Cambridge); Ian Preston (Institute for Fiscal Studies and University College London)
    Abstract: This paper assesses the accuracy of decomposing income risk into permanent and transitory components using income and consumption data. We develop a specific approximation to the optimal consumption growth rule and use Monte Carlo evidence to show that this approximation can provide a robust method for decomposing income risk. The availability of asset data enables the use of a more accurate approximation allowing for partial self-insurance against permanent shocks. We show that the use of data on median asset holdings corrects much of the error in the simple approximation which assumes no self-insurance against permanent shocks.
    Keywords: income risk, inequality, approximation methods, con-
    JEL: C30 D52 D91
    Date: 2004–10

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