New Economics Papers
on Computational Economics
Issue of 2010‒06‒18
thirteen papers chosen by

  1. Climate Change, Total Factor Productivity, and the Tanzanian Economy: A Computable General Equilibrium Analysis By Bezabih, Mintewab; Chambwera, Muyeye; Stage, Jesper
  2. A Marketplace and its Market Mechanism for Trading Commoditized Computing Resources By Jorn Altmann; Costas Courcoubetis; Marcel Risch
  3. Numerical solution of continuous-time DSGE models under Poisson uncertainty By Olaf Posch; Timo Trimborn
  4. The Economic Crisis, Public Sector Pay, and the Income Distribution By Callan, Tim; Nolan, Brian; Walsh, John R.
  5. The Impact of the Global Economic Crisis on Sub-National Government – Lessons from the Free State Province in South Africa By Helene Maisonnave; Jugal Mahabir; Ramos Mabugu; Margaret Chitiga
  6. On the Robustness of the Snell envelope By Pierre Del Moral; Peng Hu; Nadia Oudjane; Bruno Rémillard
  7. Protectionist responses to the crisis - global trends and implications By Matthieu Bussière; Emilia Pérez-Barreiro; Roland Straub; Daria Taglioni
  8. Potential implications of a special safeguard mechanism in the WTO : the case of wheat By Hertel, Thomas W.; Martin, Will; Leister, Amanda M.
  9. Welfare Impacts of Alternative Biofuel and Energy Policies By Cui, Jingbo; Lapan, Harvey; Moschini, GianCarlo; Cooper, Joseph
  10. Learning Machines Supporting Bankruptcy Prediction By Wolfgang Karl Härdle; Rouslan Moro; Linda Hoffmann
  11. Approximations to the truth: comparing survey and microsimulation approaches to measuring income for social indicators By Figari F; Iacovou M; Skew A; Sutherland H
  12. Investigating Causal Relationships in Stock Returns with Temporal Logic Based Methods By Samantha Kleinberg; Petter N. Kolm; Bud Mishra
  13. The Evolution of Secularization: Cultural Transmission, Religion and Fertility Theory, Simulations and Evidence By Bar-El, Ronen; García Muñoz, Teresa; Neuman, Shoshana; Tobol, Yossef

  1. By: Bezabih, Mintewab; Chambwera, Muyeye; Stage, Jesper
    Abstract: This paper analyzes the economic impacts of climate change-induced adjustments on the performance of the Tanzanian economy, using a countrywide CGE (computable general equilibrium) model. The general equilibrium framework enables comparison of the effects of climate change to the overall growth of the economy because responsiveness to shocks is likely to depend on the macroeconomic structure of the economy. Effect of overall climate change on agricultural productivity is projected to be relatively limited until approximately 2030 and become worse thereafter. Our simulation results indicate that, despite the projected reduction in agricultural productivity, the negative impacts can potentially be quite limited. This is because the time scales involved and the low starting point of the economy leave ample time for factor substitutability (i.e., replacing reduced land productivity with increased use of capital and labor) and increased overall productivity. This indicates that policies that give farmers opportunity to invest in autonomous climate adaptation, as well as policies that improve the overall performance of the economy, can be as important for reducing the impacts of climate change in the economy as direct government policies for climate adaptation. The study results can inform policymakers when choosing between direct climate-change adaptation policies or measures aimed at strengthening the fundamentals of the economy, as ways of insulating against external shocks.
    Keywords: climate change, agriculture, total factor productivity, Tanzania, CGE model
    JEL: Q18 C02
    Date: 2010–06–08
  2. By: Jorn Altmann; Costas Courcoubetis; Marcel Risch (Technology Management, Economics and Policy Program(TEMEP), Seoul National University)
    Abstract: This paper presents the design and implementation of the GridEcon Marketplace. In addition to supporting a market mechanism for trading computing resources on a pay-per-use basis, this marketplace also provides an environment for integrating value-added support services. These value-added services help consumers to use the utility computing market more efficiently. The GridEcon Market Mechanism for virtual machines specifies in detail the unit-of-trade, the bids and asks, as well as the matching algorithm. The marketplace and market mechanism are validated by using the GridEcon Platform, which is a service-oriented platform for composing market scenarios. Our validation results show that the GridEcon Marketplace fulfills all functional requirements and that the GridEcon Market Mechanism is computationally and economically efficient.
    Keywords: Grid Economics, Cloud computing, computing resource market, market mechanism design, utility computing, Grid computing, simulation, market scenario emulation.
    JEL: C02 C61 C63 D44 L11 L15 L86 L99 M21
    Date: 2010–03
  3. By: Olaf Posch (Aarhus University, Denmark); Timo Trimborn (University of Hannover)
    Abstract: We propose a simple and powerful method for determining the transition process in continuous-time DSGE models under Poisson uncertainty numerically. The idea is to transform the system of stochastic differential equations into a system of functional differential equations of the retarded type. We then use the Waveform Relaxation algorithm to provide a guess of the policy function and solve the resulting system of ordinary differential equations by standard methods and fix-point iteration. Analytical solutions are provided as a benchmark from which our numerical method can be used to explore broader classes of models. We illustrate the algorithm simulating both the stochastic neoclassical growth model and the Lucas model under Poisson uncertainty which is motivated by the Barro-Rietz rare disaster hypothesis. We find that, even for non-linear policy functions, the maximum (absolute) error is very small.
    Keywords: Continuous-time DSGE, Optimal stochastic control, Waveform Relaxation
    JEL: E21 G11 O41
    Date: 2010–06–10
  4. By: Callan, Tim (ESRI, Dublin); Nolan, Brian (University College Dublin); Walsh, John R. (ESRI, Dublin)
    Abstract: An important aspect of the impact of the economic crisis is how pay in the public sector responds – in the face not only of the evolution of pay in the private sector, but also extreme pressure on public spending (of which pay is a very large proportion) as fiscal deficits soar. What are the effects on the income distribution of cutting public sector pay rates or alternative strategies to reduce the public sector pay bill, and how does these vary depending on the evolution of pay in the private sector? This paper investigates these issues using data and a tax-benefit simulation for Ireland, a country which faces a particularly severe fiscal crisis and where innovative measures have already been implemented to claw back pay from public sector workers in the guise of a "pensions levy", followed most recently by a significant cut in nominal pay rates. The SWITCH tax-benefit model first allows the distributional effects of these measures, which achieved a substantial reduction in the net public sector pay bill, to be teased out. The overall impact on the income distribution, set against alternative scenarios for pay in the private sector, is assessed. This provides empirical evidence relevant to policy choices in relation to a key aspect of household income over which governments have direct influence, while at the same time illustrating methodologically how a tax-benefit model can serve as the base for such investigation.
    Keywords: public sector pay, income distribution, fiscal crisis
    JEL: D63 J38 J45
    Date: 2010–05
  5. By: Helene Maisonnave (Financial and Fiscal Commission); Jugal Mahabir (Financial and Fiscal Commission); Ramos Mabugu (Financial and Fiscal Commission); Margaret Chitiga (Department of Economics, University of Pretoria)
    Abstract: A provincial computable general equilibrium model for the Free State province in South Africa is used to quantify the channels by which the recent global economic crisis affects the province. The analysis allows focus on three levels through which provincial economies and their people are impacted by a global economic crisis, namely the macro-economic level, the meso-economic level and the micro-economic/household level. The novel features of the paper are mainly applying this methodology at sub national government level. The decrease in world prices combined with the drop in world demand lead to a fall in production for most sectors in the province. There is a negative impact on institutions, and households see their incomes drop. Though the crisis seems to be petering out now, there are lessons for intergovernmental financial relations that this paper has highlighted and long run effects of the crisis that the province needs to confront.
    Keywords: Global crisis, Computable General Equilibrium
    JEL: D58 O55
    Date: 2010–06
  6. By: Pierre Del Moral (INRIA Bordeaux - Sud-Ouest - ALEA - INRIA - Université de Bordeaux - CNRS : UMR5251); Peng Hu (INRIA Bordeaux - Sud-Ouest - ALEA - INRIA - Université de Bordeaux - CNRS : UMR5251); Nadia Oudjane (LAGA - Laboratoire Analyse, Géométrie et Applications - Universit´e Paris 13 - Université Paris-Nord - Paris XIII, EDF R&D - EDF); Bruno Rémillard (MQG - Méthodes Quantitatives de Gestion - HEC-Montréal)
    Abstract: We analyze the robustness properties of the Snell envelope backward evolution equation for discrete time models. We provide a general robustness lemma, and we apply this result to a series of approximation methods, including cut-off type approximations, Euler discretization schemes, interpolation models, quantization tree models, and the Stochastic Mesh method of Broadie-Glasserman. In each situation, we provide non asymptotic convergence estimates, including Lp-mean error bounds and exponential concentration inequalities. In particular, this analysis allows us to recover existing convergence results for the quantization tree method and to improve significantly the rates of convergence obtained for the Stochastic Mesh estimator of Broadie-Glasserman. In the final part of the article, we propose a genealogical tree based algorithm based on a mean field approximation of the reference Markov process in terms of a neutral type genetic model. In contrast to Broadie-Glasserman Monte Carlo models, the computational cost of this new stochastic particle approximation is linear in the number of sampled points.
    Keywords: Snell envelope; optimal stopping; American option pricing; genealogical trees; interacting particle model
    Date: 2010–05–28
  7. By: Matthieu Bussière (Banque de France , 31 rue Croix des petits champs, 75001 PARIS, France); Emilia Pérez-Barreiro (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Roland Straub (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Daria Taglioni (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main)
    Abstract: In this paper we take a systematic look at recent trends in global protectionism and at the potential implications of a protectionist backlash for economic growth, using results from the recent economic literature and new model simulations. We find that there has so far been a moderate increase in actual protectionist measures to restrict trade through tariff and non-tariff barriers. At the same time, evidence from surveys shows that public pressure for more economic protection has been mounting since the mid-2000s, and has possibly intensified since the start of the financial crisis. However, no World Trade Organization (WTO) member has retreated into widespread trade restrictions or protectionism to date. Our model-based simulations suggest that the impairment of the global flow of trade would hamper the recovery from the crisis, as well as the long-term growth potential of the global economy. At the same time, it is unlikely that protectionism would help to correct existing current account imbalances. Moreover, the countries implementing protectionist measures should expect a deterioration of their international competitiveness, which would further affect the potential for longer-term real GDP growth. JEL Classification: F13, F15, F21, F53
    Keywords: Protectionism, trade, financial crisis, competitiveness, World Trade Organization, global imbalances
    Date: 2010–05
  8. By: Hertel, Thomas W.; Martin, Will; Leister, Amanda M.
    Abstract: The Special Safeguard Mechanism was a key issue in the July 2008 failure to reach agreement in the World Trade Organization negotiations under the Doha Development Agenda. It includes both price and quantity-triggered measures. This paper uses a stochastic simulation model of the world wheat market to investigate the effects of policy makers implementing policies based on the Special Safeguard Mechanism rules. As expected, implementation of the quantity-triggered measures is found to reduce imports, raise domestic prices, and boost mean domestic production in the Special Safeguard Mechanism regions. However, rather than insulating countries that use it from price volatility, it would actually increase domestic price volatility in developing countries, largely by restricting imports when domestic output is low and prices high. This paper estimates that implementation of the quantity-triggered measures would shrink average wheat imports by nearly 50 percent in some regions, with world wheat trade falling by 4.7 percent. The price measures discriminate against low price exporters -- many of whom are developing countries -- and tend to increase producer price instability.
    Keywords: Markets and Market Access,Climate Change Economics,Emerging Markets,Access to Markets,Trade Policy
    Date: 2010–06–01
  9. By: Cui, Jingbo; Lapan, Harvey; Moschini, GianCarlo; Cooper, Joseph
    Abstract: We employ an open economy general equilibrium model to investigate the effects of government energy policy, with an emphasis on corn-based ethanol, on the U.S. economy. The model specification incorporates world and domestic markets, assumes pollution costs from fuel consumption, and allows endogenous determination of equilibrium quantities and prices for oil, corn and ethanol. The model is calibrated to represent a recent benchmark data set for 2009 and is used to simulate the positive and normative effects of alternative policies. We find that a second best policy of a fuel tax and ethanol subsidy approximates fairly closely the welfare gains associated with the first-best policy of an optimal carbon tax and tariffs on traded goods. The largest economic gains to the U.S. economy from these energy policies arise from the impact of the policies on U.S. terms of trade, particularly in the oil market. We also find that, conditional on the current fuel tax, an optimal ethanol mandate is superior to an optimal ethanol subsidy. In the benchmark case, the optimal ethanol mandate is about 18 billion gallons.
    Keywords: Biofuel policies; carbon tax; ethanol subsidy; gasoline tax; Greenhouse gas emissions; Mandates; renewable fuel standard; Second best; welfare.
    JEL: F1 H2 Q2
    Date: 2010–06–09
  10. By: Wolfgang Karl Härdle; Rouslan Moro; Linda Hoffmann
    Abstract: In many economic applications it is desirable to make future predictions about the financial status of a company. The focus of predictions is mainly if a company will default or not. A support vector machine (SVM) is one learning method which uses historical data to establish a classification rule called a score or an SVM. Companies with scores above zero belong to one group and the rest to another group. Estimation of the probability of default (PD) values can be calculated from the scores provided by an SVM. The transformation used in this paper is a combination of weighting ranks and of smoothing the results using the PAV algorithm. The conversion is then monotone. This discussion paper is based on the Creditreform database from 1997 to 2002. The indicator variables were converted to financial ratios; it transpired out that eight of the 25 were useful for the training of the SVM. The results showed that those ratios belong to activity, profitability, liquidity and leverage. Finally, we conclude that SVMs are capable of extracting the necessary information from financial balance sheets and then to predict the future solvency or insolvent of a company. Banks in particular will benefit from these results by allowing them to be more aware of their risk when lending money.
    Keywords: Support Vector Machine, Bankruptcy, Default Probabilities Prediction, Profitability
    JEL: C14 G33 C45
    Date: 2010–06
  11. By: Figari F; Iacovou M; Skew A; Sutherland H
    Abstract: This paper evaluates income distributions in four European countries (Austria, Italy, Spain and Hungary) using two complementary approaches: a standard approach based on reported incomes in survey data, and a microsimulation approach, where taxes and benefits are simulated. Given that benefit receipts tend to be under-reported in survey data, and over-estimated in microsimulation procedures, we may expect the two approaches to generate slightly different results. In fact, we find reasonably consistent results. To the extent that the results differ, we explore why these differences occur, and suggest directions for future research, where each approach may inform improvements in the other.
    JEL: C81 D31 I32
    Date: 2010–06–08
  12. By: Samantha Kleinberg; Petter N. Kolm; Bud Mishra
    Abstract: We describe a new framework for causal inference and its application to return time series. In this system, causal relationships are represented as logical formulas, allowing us to test arbitrarily complex hypotheses in a computationally efficient way. We simulate return time series using a common factor model, and show that on this data the method described significantly outperforms Granger causality (a primary approach to this type of problem). Finally we apply the method to real return data, showing that the method can discover novel relationships between stocks. The approach described is a general one that will allow combination of price and volume data with qualitative information at varying time scales (from interest rate announcements, to earnings reports to news stories) shedding light on some of the previously invisible common causes of seemingly correlated price movements.
    Date: 2010–06
  13. By: Bar-El, Ronen (Open University of Israel); García Muñoz, Teresa (Universidad de Granada); Neuman, Shoshana (Bar-Ilan University); Tobol, Yossef (Bar-Ilan University)
    Abstract: This study presents an evolutionary process of secularization that integrates a theoretical model, simulations, and an empirical estimation that employs data from 32 countries (included in the International Social Survey Program: Religion II – ISSP, 1998). Following Bisin and Verdier (2000, 2001a), it is assumed that cultural/social norms are transmitted from one generation to the next one via two venues: (i) direct socialization – across generations, by parents; and (ii) oblique socialization – within generations, by the community and cultural environment. This paper focuses on the transmission of religious norms and in particular on the 'religious taste for children'. The theoretical framework describes the setting and the process leading to secularization of the population; the simulations give more insight into the process; and 'secularization regressions' estimate the effects of the various explanatory variables on secularization (that is measured by rare mass-attendance and by rare-prayer), lending support to corollaries derived from the theory and simulations. The main conclusions/findings are that (i) direct religious socialization efforts of one generation have a negative effect on secularization within the next generation; (ii) oblique socialization by the community has a parabolic effect on secularization; and (iii) the two types of socialization are complements in 'producing' religiosity of the next generation.
    Keywords: cultural transmission, religion, fertility, secularization, ISSP
    JEL: C15 C25 D13 J11 J13 Z12
    Date: 2010–05

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