nep-cmp New Economics Papers
on Computational Economics
Issue of 2006‒10‒21
seven papers chosen by
Stan Miles
Thompson Rivers University

  1. Solving Heterogeneous-Agent Models by Projection and Perturbation By Michael Reiter
  2. Comparing Environmental Impact of Alternative CAP Scenarios Estimated Through an Artificial Neural Network By Andrea BONFIGLIO
  3. The stability of electricity prices: estimation and inference of the Lyapunov exponents By Bask , Mikael; Liu , Tung; Widerberg , Anna
  4. The value of information in a multi-agent market model By Toth, Bence; Scalas, Enrico; Huber, Juergen; Kirchler, Michael
  5. Education, Demographics, and the Economy By Jaag, Christian
  6. GTAP-M: A GTAP Model and Data Base that Incorporates Domestic Margins By Peterson, Everett
  7. Labour and product market competition in a small open economy, Simulation results using a DGE model of the Finnish economy By Kilponen, Juha; Ripatti , Antti

  1. By: Michael Reiter
    Abstract: The paper proposes a numerical solution method for general equilibrium models with a continuum of heterogeneous agents, which combines elements of projection and of perturbation methods. The basic idea is to solve first for the stationary solution of the model, without aggregate shocks but with fully specified idiosyncratic shocks. Afterwards one computes a first-order perturbation of the solution in the aggregate shocks. This approach allows to include a high-dimensional representation of the cross-sectional distribution in the state vector. The method is applied to a model of household saving with uninsurable income risk and liquidity constraints. The model includes not only productivity shocks, but also shocks to redistributive taxation, which cause substantial short-run variation in the cross-sectional distribution of wealth. If those shocks are operative, it is shown that a solution method based on very few statistics of the distribution is not suitable, while the proposed method can solve the model with high accuracy, at least for the case of small aggregate shocks. Techniques are discussed to reduce the dimension of the state space such that higher order perturbations are feasible. Matlab programs to solve the model can be downloaded.
    Keywords: Heterogeneous agents; projection methods; perturbation methods
    JEL: C63 C68 E21
    Date: 2006–09
  2. By: Andrea BONFIGLIO ([n.a.])
    Abstract: The paper aims to assess environmental impact produced by alternative Common Agricultural Policy (CAP) scenarios in the Italian Marche region for the period 2000-2002. Scenarios concern alternative hypotheses about direct payments for arable crops related to Agenda 2000. For this aim, a Multilayer Feedforward Neural Network model (MFNN) was applied. Different from traditional models, MFNN is able to analyze complex patterns quickly and with a high degree of accuracy. Moreover, MFNN makes assumptions about neither the underlying population nor the existence of optimising behaviour and uses the data to develop an internal representation of the complexity characterising the system analysed. The results indicate that direct payments produced positive environmental effects compared to the hypothesis of absence of direct payments. Moreover, they show that it would have been even better, from an environmental point of view, if Agenda 2000 had been more radical in comparison to the 1992 Mac Sharry reform, by introducing decoupled direct payments.
    Keywords: common agricultural policy, direct payments, environmental impact, neural networks
    JEL: C45 Q18 Q21
    Date: 2006–10
  3. By: Bask , Mikael (Bank of Finland Research); Liu , Tung (Department of Economics, Ball State University); Widerberg , Anna (Department of Economics)
    Abstract: The aim of this paper is to illustrate how the stability of a stochastic dynamic system is measured using the Lyapunov exponents. Specifically, we use a feedforward neural network to estimate these exponents as well as asymptotic results for this estimator to test for unstable (chaotic) dynamics. The data set used is spot electricity prices from the Nordic power exchange market. Nord Pool, and the dynamic system that generates these prices appears to be chaotic in one case.
    Keywords: feedforward neural network; Nord Pool; Lyapunov exponents; spot electricity prices; stochastic dynamic system
    JEL: C12 C14 C22
    Date: 2006–06–12
  4. By: Toth, Bence; Scalas, Enrico; Huber, Juergen; Kirchler, Michael
    Abstract: We present an experimental and simulated model of a multi-agent stock market driven by a double auction order matching mechanism. Studying the effect of cumulative information on the performance of traders, we find a non monotonic relationship of net returns of traders as a function of information levels, both in the experiments and in the simulations. Particularly, averagely informed traders perform worse than the non informed and only traders with high levels of information (insiders) are able to beat the market. The simulations and the experiments reproduce many stylized facts of stock markets, such as fast decay of autocorrelation of returns, volatility clustering and fat-tailed distribution of returns. These results have an important message for everyday life. They can give a possible explanation why, on average, professional fund managers perform worse than the market index.
    Keywords: Economics; econophysics; financial markets; business and management; information theory and communication theory
    JEL: C63 C00 G14
    Date: 2006–10–04
  5. By: Jaag, Christian
    Abstract: This paper deals with two issues concerning the effects of population aging on education decisions in the presence of a PAYG pension system: We first analyze the effects of an aging population per se on individual skill choices and continuous education and the production structure. Second, we study the implications of postponed retirement, which is often proposed as a measure to cope with the economic challenges of increased longevity. Our study uses a dynamic general equilibrium framework with overlapping generations and probabilistic aging. Themodel allows for capital-skill complementarity in the production of final output. As a response to population aging, in a small open economy with a fixed interest rate, our first simulation shows that GDP is depressed due to an adverse effect on skill choice and labor supply. We then introduce postponed retirement as a potentially dampening policy measure due to its encouragement of human capital formation. However, since there is less private saving in this scenario, the overall effect on GDP is even worse than in the pure aging scenario.
    Keywords: Education; Human Capital; Ageing; Demographics
    JEL: J24 J10
    Date: 2006–02–01
  6. By: Peterson, Everett
    Abstract: Transportation, wholesaling, and retailing activities are a significant segment of economic activity in many economies. The magnitude of these activities can vary greatly between products, users, and regions. However, in most applied general equilibrium (AGE) analyses, these marketing activities are not tied to specific commodities. This paper develops a model framework and database that incorporates domestic marketing margins on domestic and imported goods going to final demand or used as intermediate inputs, and margins on exports, into the standard GTAP Model. The effects of incorporating domestic marketing activities into an AGE model are illustrated by comparing the results of the standard GTAP Model to the new GTAP-M Model for several different technological change scenarios. The comparison yields two main results. First, tying the domestic marketing activities to specific commodities changes the degree of price transmission from producers to users, compared to a model that does not include margin activities explicitly. The second main result is that the magnitude of the elasticity of substitution between commodities and the composite marketing activity is very important. Allowing variable margins creates a new source of demand-responsiveness for commodities which can significantly alter the results of policy simulations.
    Date: 2006
  7. By: Kilponen, Juha (Bank of Finland Research); Ripatti , Antti (Bank of Finland Research)
    Abstract: Using the DGE model of the Finnish Economy (the ‘Aino’ model), we study the response of the economy to reforms in both labour and product markets. The reforms are two-fold. We assume that the wage mark-up, ie the monopoly power of wage-setters is gradually reduced by 5 percentage points. At the same time, the degree of competition is increased, ie price margins are exogenously reduced by 2 percentage points. These reforms imply a very favourable outcome of the economy. Both consumption and employment in-creases permanently and the reforms are welfare enhancing. Public balances improve giving room for 1.5 percentage point cut in income taxes. Our simulation exercises clearly demonstrate that such reforms may help in financing the future fiscal burden of an ageing population.
    Keywords: competition; dynamic general equilibrium; public finance
    JEL: C68 E60
    Date: 2006–04–19

This nep-cmp issue is ©2006 by Stan Miles. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.