New Economics Papers
on Computational Economics
Issue of 2005‒07‒03
twelve papers chosen by

  1. Computable General Equilibrium Micro-Simulation Analysis of the Impact of Trade Policies on Poverty in Zimbabwe By Margaret Chitiga; Tonia Kandiero; Ramos Mabugu
  2. Multi-dimensional transitional dynamics : a simple numerical procedure By Timo Trimborn; Karl-Josef Koch; Thomas M. Steger
  3. Doha Scenarios, Trade Reforms, and Poverty inthe Philippines: a CGE Analysis By Caesar B. Cororaton; John Cockburn; Erwin Corong
  4. On the Computational Power of Iterative Auctions I: Demand Queries By Liad Blumrosen; Noam Nisan
  5. On the Computational Power of Iterative Auctions II: Ascending Auctions By Liad Blumrosen; Noam Nisan
  6. A micro simulation model of demographic development and households' economic behavior in Italy By Albert Ando; Sergio Nicoletti-Altimari
  7. Liquidity risk and contagion By Rodrigo Cifuentes; Gianluigi Ferrucci; Hyun Song Shin
  8. Trade Liberalisation, Growth and Poverty in Senegal: a Dynamic Microsimulation CGE Model Analysis By Nabil Annabi; Fatou Cisse; John Cockburn; Bernard Decaluwe
  9. Trade Deficits in the Baltic States: How Long Will the Party Last? By Bems, Rudolfs; Jönsson, Kristian
  10. Implications of WTO Agreements and Domestic Trade Policy Reforms for Poverty in Bangladesh: Short vs. Long Run By Nabil Annabi; H. Khondker Bazlul; Selim Raihan; John Cockburn; Bernard Decaluwe
  12. Dynamic Discrete Choice Modeling: Monte Carlo Analysis By Robert L. Hicks; Kurt Schnier

  1. By: Margaret Chitiga; Tonia Kandiero; Ramos Mabugu
    Abstract: The paper uses a micro-simulation computable general equilibrium (CGE) model to study the impact on poverty of trade liberalisation in Zimbabwe. The model incorporates 14006 households derived from the 1995 Poverty Assessment Study Survey (PASS). The novelty of this paper is that it is one among a small group of papers that incorporates individual households in the CGE model as opposed to having representative households, allowing for a comprehensive analysis of poverty. The complete removal of tariffs favours export-oriented sectors and all imports increase. Poverty falls in the economy while inequality hardly changes. The results differ between rural and urban areas.
    Keywords: Computable General Equilibrium, Trade Liberalisation, Micro-simulation, Poverty, Inequality
    JEL: C68 D31 D58 I32
    Date: 2005
  2. By: Timo Trimborn (University of Hamburg, Department of Economics); Karl-Josef Koch; Thomas M. Steger (Institute of Economic Research (WIF), Swiss Federal Institute of Technology Zurich (ETH))
    Abstract: We propose the relaxation algorithm as a simple and powerful method for simulating the transition process in growth models. This method has a number of important advantages: (1) It can easily deal with a wide range of dynamic systems including multi-dimensional systems with stable eigenvalues that drastically in magnitude. (2) The application of the procedure is fairly user friendly. The only input required consists of the dynamic system. (3) The variant of the relaxation algorithm we propose exploits in a natural manner the in.nite time horizon, which usually underlies optimal control problems in economics. Overall, it seems that the relaxation procedure can easily cope with a large number of problems which arise frequently in the context of macroeconomic dynamic models. As an illustrative application, we simulate the transition process of the well-known Jones (1995) model.
    Keywords: C61; C63; O40
    Date: 2004–12
  3. By: Caesar B. Cororaton; John Cockburn; Erwin Corong
    Abstract: Since the early 1980s, the Philippines have undertaken substantial trade reform. The current Doha round of WTO negotiations is now likely to bring further reform and shocks to world import and export prices and world export demand. The impact of all these developments on the poor is not very clear and is the subject of very intense debate. A detailed economy-wide CGE model is used to run a series of policy experiments. Poverty is found to increase slightly with the implementation of the Doha scenario. These effects are focused primarily among rural households in the wake of falling world prices and demand for Philippines agricultural exports. The impacts of full liberalization involving free world trade and complete domestic liberalization are found to depend strongly on the mechanism the government adopts to offset forgone tariff revenue. If an indirect tax is used, the incidence of poverty falls marginally, but the depth (poverty gap) and severity (squared poverty gap) increase substantially. If, instead, an income tax is used, all measures of poverty increase. In both cases, full liberalization favors urban households, as exports, which are primarily non-agricultural, expand. In separate simulations, we discover that free world trade is poverty reducing and favors rural households, whereas domestic liberalization is poverty-increasing and favors urban households. Under free world trade, rural households benefit from increasing world agricultural export prices and demand. The anti-rural bias of domestic liberalization stems from the fact that import prices fall more for agricultural goods than for industrial goods, as initial import-weighted average tariffs rates are higher for the former. In conclusion, the current Doha agreement appears likely to slightly increase poverty, especially in rural areas and among the unemployed, self-employed and rural low-educated. The Philippines is found to have an interest in pushing for more ambitious world trade liberalization, as free world trade holds out promise for reducing poverty.
    Keywords: Computable General Equilibrium, Microsimulation, Poverty, International Trade, Philippines
    JEL: D33 D58 E27 F13 F14 I32 O15 O53
    Date: 2005
  4. By: Liad Blumrosen; Noam Nisan
    Abstract: We study the computational power and limitations of iterative combinatorial auctions. Most existing iterative combinatorial auctions are based on repeatedly suggesting prices for bundles of items, and querying the bidders for their ``demand'' under these prices. We prove several results regarding such auctions that use a polynomial number of demand queries: (1) that such auctions can simulate several other natural types of queries; (2) that such auctions can solve linear programming relaxations of winner determination problems; (3) that they can approximate the optimal allocation as well as generally possible using polynomial communication or computation, while weaker types of queries can not do so. We also initiate the study of how can the prices of bundles be represented when they are not linear, and show that the ``default'' representation has severe limitations.
    JEL: C7 D83
    Date: 2005–02
  5. By: Liad Blumrosen; Noam Nisan
    Abstract: We embark on a systematic analysis of the power and limitations of iterative ascending-price combinatorial auctions. We prove a large number of results showing the boundaries of what can be achieved by different types of ascending auctions: item prices vs. bundle prices, anonymous prices vs. personalized prices, deterministic vs. non-deterministic, ascending vs. descending, preference elicitation vs. full elicitation, adaptive vs. non-adaptive, and single trajectory vs. multi trajectory. Two of our main results show that neither ascending item-price auctions nor ascending anonymous bundle-price auctions can determine the optimal allocation among general valuations. This justifies the use of personalized bundle prices in iterative combinatorial auctions like the FCC spectrum auctions.
    Date: 2005–02
  6. By: Albert Ando; Sergio Nicoletti-Altimari (European Central Bank)
    Abstract: The relationship between the demographic structure and the saving rate of a society is the reflection of the aggregation of the behaviour of heterogeneous households, differing from one another in the type of living arrangements and in the characteristics of their members. In order to contribute to the understanding of this relationship, we construct a dynamic micro model capable of simulating the demographic development of a population, including the creation, destruction, dimension and various other important characteristics of households and their members. The demographic model is then combined with a specification of the processes generating income, social security wealth, retirement and consumption behaviour of households, and applied to a data set derived from survey data on the Italian household sector. Simulations of the model are used to study the evolution of aggregate income, saving and asset accumulation over the period 1994-2100. If fertility and mortality assumptions of recent official projections are adopted and marriage and divorce rates maintained at current levels, the dramatic ageing of the population and the marked decline in the share of population living in traditional households would lead, other things being equal, to a substantial decline in the aggregate saving rate. However, the reduction in the number of children per household and, above all, the decline in the ratio of social security wealth of households to disposable income as the effects of the recently introduced reforms begin to be felt act as offsetting factors. As a result, the aggregate saving rate increases over the initial 30 years of the simulation and moderately decreases thereafter, stabilizing slightly above the original level. Implications of changes in a number of key assumptions regarding the demographic evolution, productivity growth and individual behavioural responses are also analyzed.
    Keywords: demographic developments, family structure, consumption, saving, social security, micro simulation model
    JEL: D12 D31 D91 E21 H55 J10 J26
    Date: 2004–12
  7. By: Rodrigo Cifuentes; Gianluigi Ferrucci; Hyun Song Shin
    Abstract: This paper explores liquidity risk in a system of interconnected financial institutions when these institutions are subject to regulatory solvency constraints and mark their assets to market. When the market's demand for illiquid assets is less than perfectly elastic, sales by distressed institutions depress the market prices of such assets. Marking to market of the asset book can induce a further round of endogenously generated sales of assets, depressing prices further and inducing further sales. Contagious failures can result from small shocks. We investigate the theoretical basis for contagious failures and quantify them through simulation exercises. Liquidity requirements on institutions can be as effective as capital requirements in forestalling contagious failures.
  8. By: Nabil Annabi; Fatou Cisse; John Cockburn; Bernard Decaluwe
    Abstract: An integrated sequential dynamic computable general equilibrium model is used to study the potential poverty and inequality effects of a complete tariff removal in Senegal. The model is calibrated with a 1996 social accounting matrix and a 1995 survey of 3278 households. The outcomes indicate small short run negative impacts in terms of welfare and poverty. In the long run, growth effects captured by the model bring an expansion of the industrial and services sectors and substantial poverty decreases. However, the decomposition of the results shows that the contribution of the redistribution component to poverty alleviation is negative.
    Keywords: Dynamic CGE model; trade liberalisation; poverty; inequality; Senegal; market access; CGEM
    JEL: D33 D58 E27 F17 I32 O15 O55
    Date: 2005–05
  9. By: Bems, Rudolfs (Stockholm School of Economics); Jönsson, Kristian (Research Department, Central Bank of Sweden)
    Abstract: Since their opening up to international capital markets, the economies of Estonia, Latvia and Lithuania have experienced large and persistent capital inflows and trade deficits. This paper investigates whether a calibrated two-sector neoclassical growth model can explain the magnitudes and the timing of the trade flows in the Baltic countries. The model is calibrated for each of the three countries, which we simulate as small closed economies that suddenly open up to international trade and capital flows. The results show that the model can account for the observed magnitudes of the trade deficits in the 1995-2001 period. Introducing a real interest rate risk premium in the model increases its explanatory power. The model indicates that trade balances will turn positive in the Baltic states around 2010.
    Keywords: Baltic states; international factor movements; non-traded goods; adjustment costs; dynamic general equilibrium
    JEL: C68 F41
    Date: 2005–06–01
  10. By: Nabil Annabi; H. Khondker Bazlul; Selim Raihan; John Cockburn; Bernard Decaluwe
    Abstract: We examine the impacts of WTO agreements and domestic trade policy reforms on production, welfare and poverty in Bangladesh. A sequential dynamic computable general equilibrium (CGE) model, which takes into account accumulation effects, is used allowing for long run analysis. The study is based on 2000 SAM of Bangladesh including fifteen production sectors, four factors of production (skilled and unskilled labour, agricultural and non-agricultural capital) and mine household groups (five in rural areas and four in urban areas) based on the year 2000 household survey. To examine the link between the macro effects and micro effects in terms of poverty we use the representative household approach with actual intra-group income distributions. The study presents five simulations for which the major findings are: (1) the Doha scenario has negative implications for the overall macro economy, household welfare and poverty in Bangladesh. Terms of trade deteriorate and consumer prices, particularly food prices, increase more than nominal incomes, especially among poor households; (2) Free world trade has similar, but larger, impacts; (3) Domestic trade liberalisation induces an expansion of agricultural and light manufacturing sectors, favourable changes in the domestic terms of trade. Although the short run welfare and poverty impacts are negative, these turn positive in the long run when capital has adjusted through new investments. Rising unskilled wage rates make the poorest household the biggest winners in terms of welfare and poverty reduction; (4) Domestic liberalisation effects far outweigh those of free world trade when these scenarios are combined; (5) Remittances constitute a powerful poverty-reducing tool given their greater importance in the income of the poor.
    Keywords: Dynamic CGE model, International trade, Poverty, Bangladesh
    JEL: D33 D58 E27 F17 I32 O15 O53
    Date: 2005
  11. By: Marian Lankoande (Washington State University); Jonathan Yoder (Washington State University)
    Abstract: Scientists and policymakers are increasingly aware that wildfire management efforts should be broadened beyond the century-long emphasis on suppression to include more effective efforts at fuel management. Because wildfire risks change over time as vegetation matures, fuel management can be viewed as a timing problem, much like timber harvest itself. We develop a nested rotation model to examine the fuel treatment timing issue in the context of a forest environment with both timber value and non-timber values at-risk. Simulations are performed for a ponderosa pine forest and discussed with a focus on three important aspects of wildfire management: 1) the economic tradeoffs between fuel treatments, suppression, and timber harvest 2) the effects of public wildfire suppression on private fuel management incentives, 3) externality problems when non-timber values-at-risk such as wildland- urban interface property is not accounted for in private fuel management decisions.
    Keywords: wildfire, fuels management, fire suppression, optimal rotation, wildfire economics.
    JEL: Q23 D81
    Date: 2005–06–28
  12. By: Robert L. Hicks (Department of Economics, College of William and Mary); Kurt Schnier (Department of Environmental and Natural Reseource Economics, University of Rhode Island)
    Abstract: Recent work on spatial models of commercial fishing has provided insights into how spatial regulatory policies (i.e. Marine Protected Areas) are likely to alter the fishing location choices of commercial fishermen and the efficiency of these policies. The applied studies have spanned a diverse range of fisheries, from sedentary to highly migratory species. This literature has largely ignored the inter-temporal aspects of commercial fishing site choice at the cruise level. Therefore, these models depict fishermen as if they are ignoring how a location choice on the first day of a cruise may have potentially important consequences for the rest of the cruise. For many fisheries, particularly highly migratory ones, fishermen might choose a dynamically optimal cruise trajectory rather than myopic day-by-day strategies. An econometric model that ignores the inter-temporal aspects of location choice will likely lead to erroneous conclusions regarding a vesselÕs response to spatial regulatory policies. A dynamic discrete choice model is developed herein that utilizes the same information conventionally used in static models but is entrenched in the principals of dynamic optimization (BellmanÕs principle). Using Monte Carlo analysis, we evaluate the relative performance of this estimator as compared to the conventional static model for a variety of conditions that mimic different fishery types.
    Keywords: Dynamic Discrete Site Choice, Monte Carlo Simulation, Commercial Fishing
    JEL: C15 C35 Q20 Q58
    Date: 2005–06–01

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