New Economics Papers
on Computational Economics
Issue of 2009‒05‒16
sixteen papers chosen by

  1. Forecasting with Universal Approximators and a Learning Algorithm By Anders Bredahl Kock
  2. Assessing the Uncertainty of Land Based Carbon Sequestration: A Parameter Uncertainty Analysis with a Global Land Use Model By Kim, Yoon Hyung; Sohngen, Brent
  3. The Economy-wide Greenhouse Gas Impacts of the Biofuels Boom (or Bust) By Birur, Dileep K.; Golub, Alla A.; Hertel, Thomas W.; Rose, Steven K.
  4. Measurement of Farm Credit Risk: SUR Model and Simulation Approach By Yan, Yan; Barry, Peter; Paulson, Nicholas; Schnitkey, Gary
  5. MEDEA: A DSGE Model for the Spanish Economy By Pablo Burriel; Jesus Fernandez-Villaverde; Juan F. Rubio-Ramirez
  6. Financing Social Security: Simulating Different Welfare State Systems for Germany By Dieckhoener, Caroline; Peichl, Andreas
  7. Using Choice Experiment to Estimate Consumer Valuation: the Role of Experiment Design and Attribute Information Loads By Gao, Zhifeng; Yu, Xiaohua; House, Lisa O.
  8. Why do macro wage elasticities diverge? By Kees Folmer
  9. Analyzing labour supply of elderly people By Paul de Hek; Frank van Erp
  10. Implications of the Biofuels Boom for the Global Livestock Industry: A Computable General Equilibrium Analysis By Taheripour, Farzad; Hertel, Thomas W.; Tyner, Wallace E.
  11. Assessing the economic impacts of an economic partnership agreement on Nigeria By Andriamananjara, Soamiely; Brenton, Paul; von Uexkull, Jan Erik; Walkenhorst, Peter
  12. A Comparison of Pricing Strategies for Cellulosic Ethanol Processors: A Simulation Approach By Mark, Tyler; Darby, Paul; Salassi, Michael
  13. Finite State Markov-Chain Approximations to Highly Persistent Processes By Kopecky, Karen A.; Suen, Richard M. H.
  14. Breeding Ones' Own Subprime Crisis: The effects of labour market on financial system stability By Daras, Tomasz; Tyrowicz, Joanna
  15. Modelling the folk theorem of spatial economics: a heterogeneous regional growth model By Torben Klarl
  16. Can Crop Insurance Premiums be Reliably Estimated? By Ramirez, Octavio A.; Carpio, Carlos E.; Rejesus, Rod

  1. By: Anders Bredahl Kock (Aarhus University and CREATES)
    Abstract: This paper applies three universal approximators for forecasting. They are the Artificial Neural Networks, the Kolmogorov- Gabor polynomials, as well as the Elliptic Basis Function Networks. Even though forecast combination has a long history in econometrics focus has not been on proving loss bounds for the combination rules applied. We apply the Weighted Average Algorithm (WAA) of Kivinen and Warmuth (1999) for which such loss bounds exist. Specifically, one can bound the worst case performance of the WAA compared to the performance of the best single model in the set of models combined from. The use of universal approximators along with a combination scheme for which explicit loss bounds exist should give a solid theoretical foundation to the way the forecasts are performed. The practical performance will be investigated by considering various monthly postwar macroeconomic data sets for the G7 as well as the Scandinavian countries.
    Keywords: Forecasting, Universal Approximators, Elliptic Basis Function Network, Forecast Combination, Weighted Average Algorithm
    JEL: C22 C45 C53
    Date: 2009–05–11
  2. By: Kim, Yoon Hyung; Sohngen, Brent
    Abstract: This paper analyzes the effect of uncertainty in several key parameters on the marginal costs of carbon sequestration in forests. These parameters include the land supply elasticity, which governs the conversion of land from agriculture to forests and vice versa; parameters of the forest biomass yield function; parameters of the forest carbon density function; and parameters of the costs functions for accessing inaccessible land. Monte Carlo techniques are thus used to turn the global forest model with no probability (e.g., Sohngen & Mendelsohn, 2003; 2007) into a proper probability model through Latin hypercube sampling. For this paper, we have restricted our analysis to consideration of probability distributions for only two of the parameters described above. Specifically, these are the parameters of the forest biomass yield function and the land supply elasticity. The importance index and the least square linearization are used to determine the relative contribution of input parameters to the model results. Five hundred model runs in one simulation were performed with covariability among the parameters. The Monte Carlo simulations indicated that most of the uncertainty in forest area in developed countries relates to uncertainty in parameters of the biomass function while in developing countries, where deforestation is more important (e.g., Brazil), the simulation showed the parameters of land supply elasticity to have the most important implications for carbon supply. These results are perhaps not too surprising but they do point to the need to empirically estimate land supply elasticities in regions like Brazil, where such estimates are not currently available in the literature. The results also provide information that can be used to estimate uncertainty intervals for carbon sequestration cost functions.
    Keywords: Uncertainty Analysis, Global Land Use Model, Carbon Sequestration, Monte Carlo simulations, Resource /Energy Economics and Policy,
    Date: 2009
  3. By: Birur, Dileep K.; Golub, Alla A.; Hertel, Thomas W.; Rose, Steven K.
    Abstract: Several studies in the recent past have offered a contrasting and wide range of perspectives on economic and environmental implications of biofuels. In this study we develop a comprehensive and consistent framework for analyzing the global economic interactions and the direct and indirect impacts of biofuels production on greenhouse gas (GHG) emissions. We utilize a global Computable General Equilibrium (CGE) model which consists of interaction of energy commodities with explicit biofuels and their by-product sectors, land endowment classified by agro-ecological zones, and emission of four major GHGs - carbon dioxide, methane, nitrous oxide, fluorinated gases from agricultural and economic activities, including emissions associated with biofuel feedstock, crop conversion to fuel, and land cover conversion through change in ecosystem carbon stock. This study also pays special attention to pasture-crop and Conservative Reserve Program land due to their potential sectoral competition for land. In this paper, we examine the proposed policies for biofuels expansion in the US, EU and Brazil, as well as alternative potential trajectories of larger and smaller growth, including a collapse of the traditional biofuels market. The impact on GHG emissions are decomposed and associated with the individual drivers behind the biofuels boom, including: changes in subsidies, rising oil prices, and other major policy drivers.
    Keywords: Biofuels, Renewable Energy, Computable General Equilibrium (CGE), Agro Ecological Zones (AEZs), Land use change, Greenhouse Gas Emission., Environmental Economics and Policy, International Relations/Trade, Land Economics/Use, Resource /Energy Economics and Policy, C68, Q18, Q42, R14,
    Date: 2009
  4. By: Yan, Yan; Barry, Peter; Paulson, Nicholas; Schnitkey, Gary
    Abstract: The study addresses problems in measuring credit risk under the structure model, and then proposes a seemingly unrelated regression model (SUR) to predict farmsâ ability in meeting their current and anticipated obligations in the next 12 months. The empirical model accounts for both the dependence structure and the dynamic feature of the structure model, and is used for estimating asset correlation using FBFM data for 1995-2004. Farm credit risk is then predicted by copula based simulation process with historical default rates as benchmark. Results are reported and compared to previous studies on farm default.
    Keywords: Credit Risk Measurement, Seemingly Unrelated Regression Model, Simulation, Agribusiness, Agricultural Finance, Farm Management, Research Methods/ Statistical Methods, Risk and Uncertainty,
    Date: 2009
  5. By: Pablo Burriel (Monetary and Financial Studies Department, Bank of Spain); Jesus Fernandez-Villaverde (Department of Economics, University of Pennsylvania); Juan F. Rubio-Ramirez (Department of Economics, Duke University)
    Abstract: In this paper, we provide a brief introduction to a new macroeconometric model of the Spanish economy named MEDEA (Modelo de Equilibrio Dinámico de la Economía EspañolA). MEDEA is a dynamic stochastic general equilibrium (DSGE) model that aims to describe the main features of the Spanish economy for policy analysis, counterfactual exercises, and forecasting. MEDEA is built in the tradition of New Keynesian models with real and nominal rigidities, but it also incorporates aspects such as a small open economy framework, an outside monetary authority such as the ECB, and population growth, factors that are important in accounting for aggregate fluctuations in Spain. The model is estimated with Bayesian techniques and data from the last two decades. Beyond describing the properties of the model, we perform different exercises to illustrate the potential of MEDEA, including historical decompositions, long-run and short-run simulations, and counterfactual experiments.
    Keywords: DSGE Models, Likelihood Estimation, Bayesian Methods
    JEL: C11 C13 E30
    Date: 2009–05–04
  6. By: Dieckhoener, Caroline (University of Cologne); Peichl, Andreas (IZA)
    Abstract: In Germany, there is an ongoing debate about how to increase the efficiency of the social security system and especially its financing. The aim of this paper is to simulate different financing systems for Germany. The introduction of a Liberal British or the Southern Greek financing system increases inequality and poverty, as well as labour supply incentives. The introduction of the Social-democratic Danish financing system decreases inequality of incomes, but does not necessarily lead to less poverty. Tax payments are extremely high, whereas social contribution payments are relatively low leading to mixed incentives effects.
    Keywords: social security, welfare states, comparative analysis, EUROMOD
    JEL: C81 D31 H24
    Date: 2009–04
  7. By: Gao, Zhifeng; Yu, Xiaohua; House, Lisa O.
    Abstract: With fixed dimensionality of choice experiments, previous simulation results shows that D-optimal design with correct priori information generates more accurate valuation. In the absence of prior information, random designs and designs incorporate attribute interactions result in more precise valuation estimates. In this paper, the Monte Carlo results demonstrate that the performances of different design strategy are affected by attribute information loads in choice experiments. Consumer valuation estimates in simulation settings varies with the number of attributes.
    Keywords: Marketing, Research Methods/ Statistical Methods,
    Date: 2009
  8. By: Kees Folmer
    Abstract: This study analyses macro elasticities of the gross yearly wage per employee. From some 90 books, articles and working papers, more than 1000 elasticities have been extracted. The results indicate that the dynamic specification of the wage equation, the choice of explanatory variables and restrictions on estimated coefficients all have their impact on estimated elasticities. From the results, we generate benchmark values for each type of elasticity that may be useful to calibrate policy simulation models.
    Keywords: elasticity of pay, meta analysis
    JEL: C42 J30
    Date: 2009–03
  9. By: Paul de Hek; Frank van Erp
    Abstract: In light of the ageing of the Dutch society, policy measures aim at increasing the participation rate of elderly workers, particularly in the age-group between 55 and 64. This paper develops a stylized numerical simulation model describing consumption, savings and labour supply behaviour over the life cycle to analyze the labour-market implications of such proposals. For example, we simulate a shift in the (normal) retirement age from 65 to 67, the elimination of the Social Security premium exemption after age 65, and a premium on first-tier pension benefits if the commencement date of these benefits is postponed. Each of these reforms affect the economic outcomes via wealth effects, income effects and inter- and intratemporal substitution effects. The stylized model offers a profound theoretical underpinning which helps us to understand these policy effects over the entire life cycle of individuals. However, the numerical outcomes should be taken with some caution as the model ignores insights of behavioural economics (such as ‘framing effects’).
    Keywords: Life-cycle policies; Lifetime labour supply; Retirement
    JEL: J26 H55 E21 D31 J14 J32
    Date: 2009–02
  10. By: Taheripour, Farzad; Hertel, Thomas W.; Tyner, Wallace E.
    Abstract: In this paper, we offer a general equilibrium analysis of the impacts of US and EU biofuel mandates for the global livestock sector. Our simulation boosts biofuel production in the US and EU from 2006 levels to mandated 2015 levels. We show that mandates will encourage crop production in both biofuel and non biofuel producing regions, while reducing livestock and livestock production in most regions of the world. The non-ruminant industry curtails its production more than other livestock industries. The numerical results suggest that the biofuel mandates reduce food production in most regions while they increase crude vegetable oils in almost all regions. Implementing biofuel mandates in the US and EU will increase croplands within the biofuel and non-biofuel producer regions. A large portion of this increase will be obtained from reduced grazing lands. The biofuel producing regions are expected to reduce their coarse grains exports and raise imports of oilseeds and vegetable oils. While all livestock industries use more biofuel byproducts in their animal feed rations, the dairy and other ruminant industry benefit most from the expansion of DDGS. We finally conclude that, while biofuel mandates have important consequences for the livestock industry, they do not harshly curtail these industries. This is largely due to the important role of byproducts in substituting for higher priced feedstuffs. In addition, with relatively inelastic food demands, producers are able to pass much of the price rise on to consumers. In general, US, EU, Meddle East & North Africa, and Russia will experience significant welfare loses due to the combined US and EU mandates, while Brazil, Japan, India, and East Asia are expected to get major gains.
    Keywords: Biofuels, Livestock, Feed Ration, Biofuel Co-Product, Land Use, Livestock Production/Industries,
    Date: 2009
  11. By: Andriamananjara, Soamiely; Brenton, Paul; von Uexkull, Jan Erik; Walkenhorst, Peter
    Abstract: This study discusses potential economic implications for Nigeria of an Economic Partnership Agreement with the European Union. It uses the World Bank’s Tariff Reform Impact Simulation Tool to assess the effects of preferential tariff liberalization with respect to the European Union. The results suggest that the impact of an Economic Partnership Agreement on total imports into Nigeria will be slight. This is in part because the Agreement will likely allow the most protected sectors to be excluded from liberalization, and also because where substantial tariffs are involved much of the increase in imports from the European Union will occur at the expense of other suppliers of imports. It is this trade diversion, arising from the discriminatory nature of the EPA, which generates a negative welfare impact of the tariff reforms. One way for Nigeria to limit these losses is to pursue non-preferential trade liberalization before implementing an EPA. The paper looks at the large number of import bans in Nigeria and argues that the positive impact on welfare of removing these import bans is likely to be substantial. Their removal would undermine a major reason for cross border smuggling and pave the way for a return to normal regional trade flows. The paper shows how an Economic Partnership Agreement presents an opportunity for accelerating the reforms that are needed to support a strategy to increase regional and global trade integration. Such an agreement is more likely to have positive and significant impacts when integrated into a comprehensive strategy toward competitiveness and alleviation of the supply constraints that have stifled the impact of previous trade agreements. Key issues that should be addressed include liberalization and regulatory strengthening of services sectors to ensure that all firms in Nigeria have access to efficiently produced backbone services and initiatives to address the country’s poor trade logistics performance.
    Keywords: Free Trade,Trade Policy,Currencies and Exchange Rates,Debt Markets,Trade Law
    Date: 2009–04–01
  12. By: Mark, Tyler; Darby, Paul; Salassi, Michael
    Keywords: Resource /Energy Economics and Policy,
    Date: 2009
  13. By: Kopecky, Karen A.; Suen, Richard M. H.
    Abstract: This paper re-examines the Rouwenhorst method of approximating first-order autoregressive processes. This method is appealing because it can match the conditional and unconditional mean, the conditional and unconditional variance and the first-order autocorrelation of any AR(1) process. This paper provides the first formal proof of this and other results. When comparing to five other methods, the Rouwenhorst method has the best performance in approximating the business cycle moments generated by the stochastic growth model. It is shown that, equipped with the Rouwenhorst method, an alternative approach to generating these moments has a higher degree of accuracy than the simulation method.
    Keywords: Numerical Methods; Finite State Approximations; Optimal Growth Model
    JEL: C63
    Date: 2009–05–08
  14. By: Daras, Tomasz; Tyrowicz, Joanna
    Abstract: n this paper we take a simulation approach towards household budgets survey, analysing the impact of changes in labour market status of household members on the ability of this household to service the mortgage payments. Using the current status as benchmark, we performed simulations using stylised facts about labour market evolutions. Households with mortgage are characterised by higher activity rates and lower unemployment rates than demographically comparable households without a credit. While these are typical preconditions for the credit approval decision, this state of matters may not necessarily persist throughout the entire mortgage service period. Firstly, labour market conditions may worsen in general, comprising the credit takers together with the rest of the population. Alternatively, credit takers may undergo employment experience in the \emph{same way} as other labour market participants. Consequently, we performed analyses along two scenarios: (i) households with mortgages will gradually become alike the demographically comparable group in terms of employment performance; and (ii) recognising the fact that debtor households members may exert potentially higher effort in maintaining labour market status we model the effects of general employment outlooks deterioration. We use labour force survey data to obtain the probabilities of changing the individual labour market status, while we resort to propensity score matching techniques to provide adequate benchmark for the changes among creditors with relation to general population. In the simulations we find the share of creditors loosing liquidity with the change in the labour market status and the implied burden to the financial sector stability.
    Keywords: financial sector stability; mortgages; labour market
    JEL: C15 R20 G21
    Date: 2009
  15. By: Torben Klarl (University of Augsburg, Department of Economics)
    Abstract: During the last year, the research field of spatial economic has rapidly increased. There is consensus that the economic performance of a region depends not only on its own potential, but also on the development of their neighbouring regions. Knowledge spillovers, which are non constant over space, should influence the evolution of the region specific productivity. The so called "folk theorem of spatial economics" states, that increasing returns to scale are essential for explaining the uneven economic distribution of specific economic activity, which implies that knowledge spillover, agglomeration and distribution of per capita productivity are closely linked. Thus, the aim of this paper is, to introduce a spatial regional growth model, which links first time knowledge spillover, agglomeration, distribution of per capita productivity and the grasp of spillovers. Further, it is shown in a simulation study, how different regimes of returns to scale and grasps of knowledge affect agglomeration and distribution of per capita productivity. One of key findings is, that grasp of knowledge affects dynamic distribution of per capita productivity. Moreover, the simulation study particularly finds support for the "folk theorem of spatial economics".
    Keywords: Spatial Economics, Agglomeration, Spatial knowledge spillovers, New economic geography, Regional growth
    JEL: R11 R12 F43
    Date: 2009–05
  16. By: Ramirez, Octavio A.; Carpio, Carlos E.; Rejesus, Rod
    Abstract: The objective of this paper is to compare the accuracy of crop insurance rating methods based on historical liability and indemnity data (similar to the procedure currently used by the Risk Management Agency) and âyield distributionâ approaches. Estimated rates are compared to âtrueâ rates using empirically-grounded simulation procedures that take into account common data availability constraints. Simulation results suggest that farm and county level rate estimates using the âyield distributionâ approach are significantly more accurate than those based on historical indemnity and liability records.
    Keywords: crop insurance premiums, non-normal distributions, simulation methods, Agribusiness, Agricultural Finance, Risk and Uncertainty,
    Date: 2009–04–30

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.