New Economics Papers
on Computational Economics
Issue of 2009‒05‒23
eleven papers chosen by

  1. The Benefits and Problems of Linking Micro and Macro Models : Evidence from a Flat Tax Analysis By Andreas Peichl
  2. MEDEA: A DSGE Model for the Spanish Economy By Pablo Burriel; Jesús Fernández-Villaverde; Juan F. Rubio-Ramírez
  3. Financial Social Security : Simulating Different Welfare State Systems for Germany By Caroline Dieckhoener; Andreas Peichl
  4. Managing Future Oil Revenues in Ghana - An Assessment of Alternative Allocation Options By Clemens Breisinger; Xinshen Diao; Rainer Schweickert; Manfred Wiebelt
  5. Policy Liberalization and US Merchandise Trade Growth, 1980--2006 By Matthew Adler; Gary Clyde Hufbauer
  6. Managing Household Waste in Ireland: Behavioural Parameters and Policy Options By John Curtis; Sean Lyons; Abigail O'Callaghan-Platt
  7. Preferential trade agreements between the monetary community of Central Africa and the European Union: Stumbling or building blocks? A general equilibrium approach By Ngeleza, Guyslain K.; Muhammad, Andrew
  8. The possible macroeconomic impact on the UK of an influenza pandemic By Marcus Keogh-Brown; Simon Wren-Lewis; W. John Edmunds; Philippe Beutels; Richard D. Smith
  9. Can In-Work Benefits Improve Social Inclusion in the Southern European Countries? By Figari F
  10. Algorithm for payoff calculation for option trading strategies using vector terminology By Sinha , Pankaj; Johar, Archit
  11. A new alogrithm for the loss distribution function with applications to Operational Risk Management By Dominique Guegan; Bertrand Hassani

  1. By: Andreas Peichl
    Abstract: Microsimulation (MS) and Computable General Equilibrium models (CGE) have both been widely used in policy analysis. Their combination allows the utilisation of the advantages of both types. The aim of this paper is to describe the state-of-the-art in simulation analysis and to illustrate the benefits and problems of linking micro and macro models by analysing flat tax reform proposals for Germany. Taking feedback effects into account has important implications for the evaluation of tax reforms. The analysis shows that a personal income flat tax can indeed overcome the fundamental equity efficiency trade-off while simultaneously increasing the tax revenue. However, this result does not hold for a flat tax combining a personal income flat tax with a corporate cash flow flat tax, even when allowing for an ex-post loss in revenue as the top of the distribution still gains the most.
    Keywords: Microsimulation, CGE, linked micro macro models, flat tax
    JEL: D58 H2 J22
    Date: 2009
  2. By: Pablo Burriel; Jesús Fernández-Villaverde; Juan F. Rubio-Ramírez
    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.
    Date: 2009–05
  3. By: Caroline Dieckhoener; Andreas Peichl
    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
  4. By: Clemens Breisinger; Xinshen Diao; Rainer Schweickert; Manfred Wiebelt
    Abstract: Contemporary policy debates on the macroeconomics of resource booms often concentrate on the short-run Dutch disease effects of public expenditure ignoring the possible long-term effects of alternative revenue-allocation options and the supply-side impact of royalty-financed public investments. In a simple model applied here, the government decides the level and timing of spending out of resource rents. This model also considers productivity spillovers over time, which may exhibit a sector bias toward domestic production or exports. A dynamic computable general equilibrium model is used to simulate the effect of temporary oil revenue inflows to Ghana. The simulations show that beyond the short-run Dutch disease effects, the relationship between windfall profits, growth and households’ welfare is less straightforward than what the simple model of the "resource curse" suggests. The CGE model results suggest that designing a rule to smoothing in and out of oil revenues between productivity enhancing investments and an oil fund is crucial to achieving both shared growth and macroeconomic stability
    Keywords: oil fund, public expenditures, growth, productivity spillovers, Ghana, CGE analysis
    JEL: H4 O5
    Date: 2009–05
  5. By: Matthew Adler (Peterson Institute for International Economics); Gary Clyde Hufbauer (Peterson Institute for International Economics)
    Abstract: This working paper draws on historical and contemporary data on tariffs, nontariff barriers, and transportation costs (for the United States and its major trading partners) to estimate the role of policy liberalization in US merchandise trade growth over the period 1980 to 2006. Both partial equilibrium analysis and computable general equilibrium analysis are used to make the estimates. Both methods indicate that roughly 25 percent of US trade growth since 1980 can be attributed to policy liberalization. Policy liberalization plays a larger role in US export growth (35 to 40 percent) than US import growth (25 percent). According to these estimates, policy liberalization accounts for almost all US merchandise growth in excess of growth that can be explained by expanding GDP in the United States and abroad.
    Keywords: International trade, policy liberalization, tariff liberalization, nontariff barriers, transportation costs
    JEL: F1 F13 F15 F17 C68
    Date: 2009–05
  6. By: John Curtis (EPA); Sean Lyons (ESRI); Abigail O'Callaghan-Platt (Trinity College Dublin)
    Abstract: Ireland has signed up to ambitious targets for diverting municipal solid waste from landfill. These targets are likely to be very difficult to meet without substantial changes to the way household waste is collected and managed. Data on household waste management behaviour in Ireland is scarce, and policymaking could benefit from improved data and market analysis. In this paper we use data from the EPA and CSO to estimate econometric models of household waste collection in Ireland, providing national estimates of income elasticities of demand, price elasticities where unit charges are in place, effects of imposing weight-based charging and effects of other important changes to service characteristics. These results are then used in a simulation model to illustrate the likely effects of some current policy options.
    Date: 2009–05
  7. By: Ngeleza, Guyslain K.; Muhammad, Andrew
    Abstract: "This paper uses a computable general equilibrium approach to simulate two opposing views describing regional trade agreements either as building blocks for or stumbling blocks to multilateral trade liberalization. This study focuses on the free trade agreement (FTA) between the Economic and Monetary Community of Central Africa (CEMAC) and the European Union (EU). Results show that although a regional trade agreement may slightly raise welfare among the members of the agreement, the cost to nonmembers can be high. In this paper we argue that multilateral liberalization and a regional free trade agreement between the EU and CEMAC are not mutually exclusive. Regional trade agreements should be complementary and consistent with a multilateral agreement, not an attempt to replace it. The regional breakdown in our design considers 14 regions, allowing for country-specific analysis for one least-developed country (Democratic Republic of Congo) and one non-least-developed country (Cameroon). Multilateral liberalization amplifies welfare gain for Cameroon. The Democratic Republic of Congo, with its weaker institutional capacity, is affected negatively. An EU-CEMAC FTA without multilateralism produces gains for both Cameroon and the Democratic Republic of Congo. The gain for Cameroon is, however, moderate compared with that achieved when the EU-CEMAC FTA is accompanied with a multilateral agreement." from authors' abstract
    Keywords: Regional trade, multilateral trade, Computable General Equilibrium Models, European Union, Development strategies,
    Date: 2009
  8. By: Marcus Keogh-Brown; Simon Wren-Lewis; W. John Edmunds; Philippe Beutels; Richard D. Smith
    Abstract: Little is known about the possible impact of an influenza pandemic on a nation’s economy. We applied the UK macroeconomic model ‘COMPACT’ to epidemiological data on previous UK influenza pandemics, and extrapolated a sensitivity analysis to cover more extreme disease scenarios. Analysis suggests that the economic impact of a repeat of the 1957 or 1968 pandemics, allowing for school closures, would be short lived, constituting a loss of 3.35% and 0.58% of GDP in the first pandemic quarter and year respectively. A more severe scenario (with more than 1% of the population dying) could yield impacts of 21% and 4.5% respectively. The economic shockwave would be gravest when absenteeism (through school closures) increases beyond a few weeks, creating policy repercussions for influenza pandemic planning as the most severe economic impact is due to policies to contain the pandemic rather than the pandemic itself. Accounting for changes in consumption patterns made in an attempt to avoid infection worsens the potential impact. Our mild disease scenario then shows first quarter/first year reductions in GDP of 9.5%/2.5%, compared to our severe scenario reductions of 29.5%. These results clearly indicate the significance of behavioural change over disease parameters.
    Keywords: Pandemic, Influenza, Simulation, COMPACT
    JEL: E17 I18 Q54
    Date: 2009
  9. By: Figari F
    Abstract: This paper analyses the effects of implementing a family-based and an individually-based in-work benefit in the Southern European Countries using EUROMOD, the EU-wide tax-benefit microsimulation model. In-Work Benefits (IWBs) are means-tested cash transfers given to individuals, through the tax system,conditional on their employment status. They are intended to enhance the incentives to accept work and redistribute resources to low income groups. The research confirms the presence of a trade off between the redistributive and the incentive effects of the different policies. Family-based in-work benefits are better targeted on the poorest households, in particular in Italy and Portugal. Individually-based policies lead to greater incentives to work, in particular in Italy and in Greece. Individually-based IWBs seem to be more efficient if the enhancement of the labour market participation of women in couples is of fundamental concern.
    Keywords: poverty, work benefits, fiscal microsimulation, female labour market
    JEL: H53 I32 I38
    Date: 2009–05–12
  10. By: Sinha , Pankaj; Johar, Archit
    Abstract: The aim of this paper is to develop an algorithm for calculating and plotting payoff of option strategies for a portfolio of path independent vanilla and exotic options. A general algorithm for calculating the vector matrix for any arbitrary combination strategy is also developed for some of the commonly option trading strategies.
    Keywords: option trading strategies; vector
    JEL: C63 C88 C02 G00
    Date: 2009–05–15
  11. By: Dominique Guegan (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Bertrand Hassani (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: Operational risks inside banks and insurance companies is currently an important task. The computation of a risk measure associated to these risks lies on the knowledge of the so-called Loss Distribution Function. Traditionally this distribution function is computed via the Panjer algorithm which is an iterative algorithm. In this paper, we propose an adaptation of this last algorithm in order to improve the computation of convolutions between Panjer class distributions and continuous distributions. This new approach permits to reduce drastically the variance of the estimated VAR associated to the operational risks.
    Keywords: Operational risk, Panjer algorithm, Kernel, numerical integration, convolution.
    Date: 2009–04

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