nep-cmp New Economics Papers
on Computational Economics
Issue of 2010‒12‒18
fourteen papers chosen by
Stan Miles
Thompson Rivers University

  1. Using genetic algorithms to model the evolution of heterogenous beliefs By James Bullard; John Duffy
  2. A comparison of data mining methods for mass real estate appraisal By del Cacho, Carlos
  3. Equilibrium policy simulations with random utility models of labour supply By Colombino Ugo
  4. Effects of the Global Financial and Economic Crisis on the Bolivian Economy: A CGE Approach By Martin Cicowiez; Carlos Gustavo Machicado
  5. Fiscal Consolidation with High Growth: A Policy Simulation Model for India By Sudipto Mundle; N.R. Bhanumurthy; Surajit Das
  6. Tariffs in New Zealand: The economic impacts of retaining tariffs in New Zealand A dynamic CGE analysis By John Ballingall; James Giesecke; James Zuccollo
  7. Save now, prosper later: Increasing New Zealand’s savings rate - a preliminary dynamic CGE analysis By James Zuccollo; John Ballingall
  8. Climate engineering: cost benefit and beyond By Gramstad, Kjetil; Tjøtta, Sigve
  9. The Awakening Chinese Economy: Macro and Terms of Trade Impacts on 10 Major Asia-Pacific Countries By Mai, Yin Hua; Adams, Philip; Dixon, Peter; Menon, Jayant
  10. An efficient Peak-over-Threshold implementation for operational risk capital computation. By Dominique Guegan; Bertrand Hassani; Cédric Naud
  11. Convergence to monetary equilibrium: computational simulation of a trading post economy with transaction costs By Hu, Xue; Whang, Yu-Jung; Zhang, Qiaoxi
  12. An Optimal Control Approach to Portfolio Optimisation with Conditioning Information By Marc Boissaux; Jang Schiltz
  13. Recreational trip timing and duration prediction: A research note By Hailu, Atakelty; Gao, Lei
  14. The World Economy in 2050: a Tentative Picture By Agnes Benassy-Quere; Lionel Fontagne; Jean Foure

  1. By: James Bullard; John Duffy
    Date: 2010–12–08
  2. By: del Cacho, Carlos
    Abstract: We compare the performance of both hedonic and non-hedonic pricing models applied to the problem of housing valuation in the city of Madrid. Urban areas pose several challenges in data mining because of the potential presence of different market segments originated from geospatial relations. Among the algorithms presented, ensembles of M5 model trees consistently showed superior correlation rates in out of sample data. Additionally, they improved the mean relative error rate by 23% when compared with the popular method of assessing the average price per square meter in each neighborhood, outperforming commonplace multiple linear regression models and artificial neural networks as well within our dataset, comprised of 25415 residential properties.
    Keywords: mass appraisal; real estate; data mining
    JEL: L85
    Date: 2010–12–11
  3. By: Colombino Ugo (University of Turin)
    Abstract: Many microeconometric models of discrete labour supply include alternative-specific constants meant to account for (possibly besides other factors) the density or accessibility of particular types of jobs (e.g. parttime jobs vs. full-time jobs). The most common use of these models is the simulation of tax-transfer reforms. The simulation is usually interpreted as a comparative static exercise, i.e. the comparison of different equilibria induced by different policy regimes. The simulation procedure, however, typically keeps fixed the estimated alternative-specific constants. In this note we argue that this procedure is not consistent with the comparative statics interpretation. Equilibrium means that the number of people willing to work on the various job types must be equal to the number of available jobs. Since the constants reflect the number of jobs and since the number of people willing to work change as a response to the change in tax-transfer regime, it follows that the constants should also change. A structural interpretation of the alternative-specific constants leads to the development of a simulation procedure consistent with the comparative static interpretation. The procedure is illustrated with an empirical example.
    Date: 2010–10
  4. By: Martin Cicowiez (CEDLAS-Universidad Nacional de La Plata); Carlos Gustavo Machicado (Institute for Advanced Development Studies)
    Abstract: This paper analyses the impact of the Global Financial Crisis on the Bolivian economy. The PEP 1-1 Standard Model has been employed to analyze the effects of a reduction in (i) the world export prices of mining and agriculture, (ii) the world demand of textiles, and (iii) transfers to households (i.e., remittances) from abroad. The model has been calibrated to a new 2006 SAM for Bolivia. The households have been disaggregated according to their location (urban and rural) and ethnicity (indigenous and non-indigenous). The factors of production have been disaggregated into skilled and unskilled labor, capital, and natural resources. Not surprisingly, our results highlight the relevance of the decrease in the export price of natural gas in explaining the negative effects of the Global Financial Crisis.
    Keywords: Computable General Equilibrium Model, Financial Crisis, Forecasting and Simulation
    JEL: C68 E17
    Date: 2010–08
  5. By: Sudipto Mundle; N.R. Bhanumurthy; Surajit Das (National Institute of Public Finance and Policy)
    Abstract: In this paper a fiscal consolidation program for India has been presented based on a policy simulation model that enables us to examine the macroeconomic implications of alternative fiscal strategies, given certain assumptions about other macro policy choices and relevant exogenous factors. The model is then used to estimate the outcomes resulting from a possible strategy of fiscal consolidation in the base case. The exercise shows that it is possible to have fiscal consolidation while at the same time maintaining high GDP growth of around 8% or so. The strategy is to gradually bring down the revenue deficit to zero by 2014-15, while allowing a combined fiscal deficit for centre plus states of about 6% of GDP. This provides the space for substantial government capital expenditure, which translates to a significant public investment program. This in turn leads to high overall investment directly and indirectly, via the crowding in effect on private investment, which drives the high GDP growth. The exercise has also tested the robustness of this strategy under two alternative scenarios of higher and lower advanced country growth compared to the base case.
    Keywords: Macroeconomic Modelling, Policy Simulation, Fiscal Policy, India
    JEL: C32 E10 E17 E60 H60
    Date: 2010
  6. By: John Ballingall; James Giesecke; James Zuccollo (NZ Institute of Economic Research)
    Abstract: The government announced in late 2009 that it would freeze tariffs at current levels until 2015 at the earliest. We examine the potential costs and benefits to the New Zealand economy of this policy decision using a recently-developed dynamic computable general equilibrium (CGE) model of the New Zealand economy. We find that the elimination of tariffs in New Zealand delivers a very small increase in GDP as allocative efficiency improves. However, the terms of trade effects associated with the tariff removal generate a very small welfare loss. We assess the sensitivity of the welfare results to key elasticity parameters.
    Keywords: dynamic computable general equilibrium, New Zealand, tariffs, allocative efficiency, cost benefit analysis
    JEL: F13 F14 C68
    Date: 2010
  7. By: James Zuccollo; John Ballingall (NZ Institute of Economic Research)
    Keywords: New Zealand, savings rate, computable general equilibrium
    JEL: E21 C68
    Date: 2010
  8. By: Gramstad, Kjetil; Tjøtta, Sigve
    Abstract: International efforts on abating climate change, focusing on reductions of greenhouse gas emissions, have thus far proved unsuccessful. This motivates exploration of other strategies such as climate engineering. We modify the Dynamic Integrated model of Climate and the Economy (DICE), and use it in a cost-benefit analysis of climate engineering specifically deposition of sulphur in the stratosphere. The model simulations show that climate engineering passes a cost-benefit test. The cost of postponing climate engineering by 20-30 years is relatively low. Going beyond these standard cost-benefit analyses, climate engineering may still fail; voters may dislike the idea of climate engineering; they do not like the idea of tampering with nature, and their dislike stands independent of outcomes of cost-benefit analyses.
    Keywords: Climate change; climate engineering; cost-benefit analyses; public choice.
    JEL: Q54 Q58
    Date: 2010–09–23
  9. By: Mai, Yin Hua (Centre of Policy Studies and IMPACT Project); Adams, Philip (Centre of Policy Studies and IMPACT Project); Dixon, Peter (Centre of Policy Studies and IMPACT Project); Menon, Jayant (Asian Development Bank)
    Abstract: This paper analyzes the impact that terms of trade (TOT) are likely to have on the growth of the People’s Republic of China’s (PRC) neighboring countries. Two scenarios employing a dynamic computable general equilibrium framework are considered: (i) a convergence scenario, where historical trends are projected; and (ii) a baseline scenario, where technological progress in the PRC is placed in line with that of the United States (US). The results show that the PRC’s technological convergence leads to increased world prices for mining products, and lower world prices for manufactures, especially those exported extensively by the PRC. On the whole, however, the effects on the growth and TOT of the PRC’s neighboring countries are relatively small. The modelling framework used in this study explicitly captures the various offsetting effects that dampen the impact on TOT and contribute to the small impact on growth. In addition, the additional capital required to finance the PRC’s growth comes predominantly from domestic savings, placing little pressure on the global supply of capital. Thus, an awakening PRC is unlikely to make a dramatic entrance despite the country’s overall positive impact on the region – although there is nothing to fear, there is also only little to gain.
    Keywords: computable general equilibrium; multicountry models; People’s Republic of China; terms of trade
    JEL: C68 F17 F47
    Date: 2010–11–01
  10. By: Dominique Guegan (Centre d'Economie de la Sorbonne - Paris School of Economics); Bertrand Hassani (BPCE and Centre d'Economie de la Sorbonne); Cédric Naud (BPCE)
    Abstract: Operational risk quantification requires dealing with data sets which often present extreme values which have a tremendous impact on capital computations (VaR). In order to take into account these effects we use extreme value distributions to model the tail of the loss distribution function. We focus on the Generalized Pareto Distribution (GPD) and use an extension of the Peak-over-threshold method to estimate the threshold above which the GPD is fitted. This one will be approximated using a Bootstrap method and the EM algorithm is used to estimate the parameters of the distribution fitted below the threshold. We show the impact of the estimation procedure on the computation of the capital requirement - through the VaR - considering other estimation methods used in extreme value theory. Our work points also the importance of the building's choice of the information set by the regulators to compute the capital requirement and we exhibit some incoherence with the actual rules.
    Keywords: Operational risk, generalized Pareto distribution, Picklands estimate, Hill estimate, expectation maximization algorithm, Monte Carlo simulations, VaR.
    JEL: C1 C6
    Date: 2010–11
  11. By: Hu, Xue; Whang, Yu-Jung; Zhang, Qiaoxi
    Abstract: In the classic Arrow-Debreu model, the existence of money is not accommodated. However, using trading post market segmentation and requiring budget balance in each pair-wise transaction the model can converge to monetary equilibrium. Uniqueness of the common medium of exchange (commodity money) follows from scale economy in transaction costs. Also, this paper shows that existence and convergence to monetary equilibrium are totally different concept. In Full Double Coincidence of Wants situation, where previous market information helps households judging which good has highest saleableness, convergence takes place more easily than in Absence of Double Coincidence of Wants situation. This paper investigates the emergence of commodity money as the result of a tatonnement adjustment in a trading post economy. The convergence process models Menger‟s concept of saleableness – the most liquid good becomes the common medium of exchange. A computational approach is adopted to illustrate the monetary convergence as a result of decentralized adjustment process by utility maximizing households in the economy. Starting from an arbitrary initial economy, the analysis constructs a mapping from a compact economy space to monetary equilibrium or non-monetary equilibrium. By varying the transaction costs parameters and the household endowments, the paper successfully identifies the regions of parameter space where convergence to monetary equilibrium occurs as a result of decentralized adjustment process. The reasons for non-convergence are also investigated.
    Keywords: trading post
    Date: 2010–10–20
  12. By: Marc Boissaux (Luxembourg School of Finance, University of Luxembourg); Jang Schiltz (Luxembourg School of Finance, University of Luxembourg)
    Abstract: In the classical discrete-time mean-variance context, a method for portfolio optimisation using conditioning information was introduced in 2001 by Ferson and Siegel ([1]). The fact that there are many possible signals that could be used as conditioning information, and a number of empirical studies that suggest measurable relationships between signals and returns, causes this type of portfolio optimisation to be of practical as well as theoretical interest. Ferson and Siegel obtain analytical formulae for the basic unconstrained portfolio optimisation problem. We show how the same problem, in the presence of a riskfree asset and given a single conditioning information time series, may be expressed as a general constrained infinite-horizon optimal control problem which encompasses the results in [1] as a special case. Variants of the problem not amenable to closed-form solutions can then be solved using standard numerical optimal control techniques. We extend the standard finite-horizon optimal control sufficiency and necessity results of the Pontryagin Maximum Principle and the Mangasarian sufficiency theorem to the doubly-infinite horizon case required to cover our formulation in its greatest generality. As an application, we rephrase the previously unsolved constrained-weight variant of the problem in [1] using the optimal control framework and derive the specific necessary conditions applicable. Finally, we carry out simulations involving numerical solution of the resulting optimal control problem to assess the extent to which the use of conditioning information brings about practical improvements in the field of portfolio optimisation.
    Keywords: Optimal Control, Portfolio Optimization
    JEL: C02 C61 C65 G11
    Date: 2010
  13. By: Hailu, Atakelty; Gao, Lei
    Abstract: This paper presents models that predict two recreational fishing trip parameters: the length of a trip and the timing of a trip within a year. A discrete choice (logit) model linking the choice of trip timing to calendar events, the demographic characteristics of anglers as well as the nature of the trip is econometrically estimated. A Tobit model is used to evaluate the relationship between fishing trip length and personal and trip characteristics. The results indicate that timing choice and trip length can be explained well in terms of observable personal and trip variables. Knowledge of these relationships is a useful input to tourism/recreational fishing management as well as to the development of tourism/fishing activity simulation models.
    Keywords: recreational fishing, trip timing, length of recreational trips, tourism simulation, environmental impact management, Environmental Economics and Policy,
    Date: 2010–11–30
  14. By: Agnes Benassy-Quere; Lionel Fontagne; Jean Foure
    Abstract: We present growth scenarios for 128 countries to 2050, based on a three-factor production function that includes capital, labour and energy. We improve on the literature by accounting for the energy constraint through dynamic modelling of energy productivity, and departing from the assumptions of either a closed economy or full capital mobility by applying a Feldstein-Horioka-type relationship between savings and investment rates. Our results suggest that, accounting for relative price variations, China could account for 28% of the world economy in 2050, which would be much more than the United States (14%), India (12%), the European Union (11%) and Japan (3%). They suggest also that China would overtake the United States around 2025 (2035 at constant relative prices). However, in terms of standards of living, measured through GDP per capita in purchasing power parity, only China would be close to achieving convergence to the US level, and only at the end of the simulation period.
    Keywords: GDP projections; long run; global economy
    JEL: E23 E27 F02 F47
    Date: 2010–12

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