New Economics Papers
on Computational Economics
Issue of 2008‒07‒20
seven papers chosen by

  1. Computation of Equilibria in OLGModels with Many Heterogeneous Households By Sebastian Rausch; Thomas F. Rutherford
  2. The macroeconomic, industrial and distributional effects of removing tariffs in Bangladesh By Hoque, Serajul
  3. A Comparison of Results From MRIO and Interregional Computable General Equilibrium (CGE) Analyses of the Impacts of a Positive Demand Shock on the ‘CO2 Trade Balance’ Between Scotland and the Rest of the UK By Michelle Gilmartin; Kim Swales; Karen Turner
  4. Strong Predictor-Corrector Euler Methods for Stochastic Differential Equations By Nicola Bruti-Liberati; Eckhard Platen
  5. A Note on Competing Merger Simulation Models in Antitrust Cases: Can the Best Be Identified? By Oliver Budzinski
  6. An Approximate Consumption Function By Mario Padula
  7. Consumer Price Index. Does the Price Collection Frequency Matter? Some Monte Carlo Results. By Dikaios Tserkezos

  1. By: Sebastian Rausch (Department of Economics, University of Duisburg-Essen, Germany; Ruhr Graduate School in Economics, Essen, Germany); Thomas F. Rutherford (The Swiss Federal Institute of Technology (ETH-Zürich), Switzerland)
    Abstract: This paper develops a decomposition algorithm by which a market economy with many households may be solved through the computation of equilibria for a sequence of representative agent economies. The paper examines local and global convergence properties of the sequential recalibration (SR) algorithm. SR is then demonstrated to efficiently solve Auerbach- Kotlikoff OLG models with a large number of heterogeneous households. We approximate equilibria in OLG models by solving a sequence of related Ramsey optimal growth problems. This approach can provide improvements in both efficiency and robustness as compared with simultaneous solution methods.
    Keywords: Computable general equilibrium, Overlapping generations, Microsimulation, Sequential recalibration
    JEL: C68 C81 D61 D91
    Date: 2008–06
  2. By: Hoque, Serajul
    Abstract: This paper examines the economic effects of removing tariffs in Bangladesh using a computable general equilibrium (CGE) modelling approach. The results of the simulations indicate that in the short-run a funded tariff cut with fixed real national savings would increase employment slightly and hence would expand GDP. There would be a small economy-wide welfare gain as measured by real consumption. The sectoral results showed that export-oriented industries would experience an expansion in output and employment. There also would be positive effects on the suppliers to these industries. Lightly-protected industries, which rely heavily on imported intermediate inputs, are projected to show robust expansion as they would benefit from a cost reduction. However, highly-protected, import-competing industries would suffer a contraction in output and employment as they would face increased competition from imports due to the removal of tariffs. The simulation results also indicate that there would have some noticeable effects on the distribution of real consumption between different household groups. Overall, urban households would experience an expansion in real consumption and rural households would suffer a contraction as a consequence of the funded tariff cut with fixed real national savings.
    Keywords: CGE model; trade liberalisation; income distribution; Bangladesh
    JEL: F13 C68 O15
    Date: 2008–01
  3. By: Michelle Gilmartin (Department of Economics, University of Strathclyde); Kim Swales (Department of Economics, University of Strathclyde); Karen Turner (Department of Economics, University of Strathclyde)
    Abstract: In previous work we have applied the environmental multi-region input-output (MRIO) method proposed by Turner et al (2007) to examine the ‘CO2 trade balance’ between Scotland and the Rest of the UK. In McGregor et al (2008) we construct an interregional economy-environment input-output (IO) and social accounting matrix (SAM) framework that allows us to investigate methods of attributing responsibility for pollution generation in the UK at the regional level. This facilitates analysis of the nature and significance of environmental spillovers and the existence of an environmental ‘trade balance’ between regions. While the existence of significant data problems mean that the quantitative results of this study should be regarded as provisional, we argue that the use of such a framework allows us to begin to consider questions such as the extent to which a devolved authority like the Scottish Parliament can and should be responsible for contributing to national targets for reductions in emissions levels (e.g. the UK commitment to the Kyoto Protocol) when it is limited in the way it can control emissions, particularly with respect to changes in demand elsewhere in the UK. However, while such analysis is useful in terms of accounting for pollution flows in the single time period that the accounts relate to, it is limited when the focus is on modelling the impacts of any marginal change in activity. This is because a conventional demand-driven IO model assumes an entirely passive supply-side in the economy (i.e. all supply is infinitely elastic) and is further restricted by the assumption of universal Leontief (fixed proportions) technology implied by the use of the A and multiplier matrices. In this paper we argue that where analysis of marginal changes in activity is required, a more flexible interregional computable general equilibrium approach that models behavioural relationships in a more realistic and theory-consistent manner, is more appropriate and informative. To illustrate our analysis, we compare the results of introducing a positive demand stimulus in the UK economy using both IO and CGE interregional models of Scotland and the rest of the UK. In the case of the latter, we demonstrate how more theory consistent modelling of both demand and supply side behaviour at the regional and national levels affect model results, including the impact on the interregional CO2 ‘trade balance’.
    Keywords: CGE modelling, MRIO, CO2 trade balance, environmental responsibility
    JEL: D57 D58 R15 Q56
    Date: 2008–06
  4. By: Nicola Bruti-Liberati (School of Finance and Economics, University of Technology, Sydney); Eckhard Platen (School of Finance and Economics, University of Technology, Sydney)
    Abstract: This paper introduces a new class of numerical schemes for the pathwise approximation of solutions of stochastic differential equations (SDEs). The proposed family of strong predictor-corrector Euler methods are designed to handle scenario simulation of solutions of SDEs. It has the potential to overcome some of the numerical instabilities that are often experienced when using the explicit Euler method. This is of importance, for instance, in finance where martingale dynamics arise for solutions of SDEs with multiplicative diffusion coefficients. Numerical experiments demonstrate the improved asymptotic stability properties of the new symmetric predictor-corrector Euler methods.
    Keywords: Stochastic differential equations; simulation methods; strong predictor-corrector Euler methods; strong convergence; asymptotic stability
    Date: 2008–06–01
  5. By: Oliver Budzinski (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: Advanced economic instruments like simulation models are enjoying an increased popularity in practical antitrust. There is hope that they – being quantitative predictive economic evidence – can substitute for qualitative structural analysis and lead to unambiguous results. This paper demonstrates that it can be theoretically impossible to identify the most appropriate simulation model for any given merger proposal. Due to the inevitable necessity to reduce real-world complexity and multi-parameter character of merger cases, the comparative fit of proposed merger simulation models with mutually incompatible predictions can be the same. This is valid even if an ideal antitrust procedure is assumed. This insight is important regarding two aspects. First, the scope for partisan economic evidence cannot be completely eroded in merger control. Second, simulation cannot eliminate or substitute for qualitative reasoning and economically informed common sense.
    Keywords: merger simulation, merger control, antitrust, economic evidence
    JEL: L40 C15 K21 A11
    Date: 2008
  6. By: Mario Padula (Università di Venezia, and CSEF)
    Abstract: This paper proposes an approximation to the consumption function in the buffer-stock model. The approximation is based on the analytic properties of the consumption function in the buffer-stock model. In such model, the consumption function is increasing and concave and its derivative is bounded from above and below. We compare the approximation with the consumption function obtained using the endogenous grid point algorithm and show that using the former or the latter for estimating the Euler equation leads to very similar results.
    Keywords: Buffer stock model of saving; Computational methods; Approximation methods and estimation
    JEL: C63 D12 E21
    Date: 2008–07–01
  7. By: Dikaios Tserkezos (Department of Economics, University of Crete, Greece)
    Abstract: In this paper, we examine the effects of data collection frequency on the computation of the Consumer Price Index (CPI). Using stochastic simulation techniques, we conclude that the frequency of data collection has a considerable effect on CPI values. Our findings confirm the need for high levels of data collection frequency for the purpose of computing the CPI and, in general, for the more effective monitoring of developments in the cost of living, as this is approached on the basis of Consumer Price Index values.
    Keywords: Frequency of Data Collection, Consumer Price Index, Stochastic Simulation.
    JEL: C81 C82 E30
    Date: 2008–06–03

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