nep-cmp New Economics Papers
on Computational Economics
Issue of 2011‒02‒05
eleven papers chosen by
Stan Miles
Thompson Rivers University

  1. Solving the multi-country real business cycle model using ergodic set methods By Kenneth Judd; Lilia Maliar; Serguei Maliar
  2. Technical Guidelines for Evaluating the Impacts of Tourism Using Simulation Models By J. Edward Taylor
  3. On the Monte Carlo simulation of BSDEs: An improvement on the Malliavin weights. By Touzi, Nizar; Manolarakis, Konstantinos; Crisan, Dan
  4. Reproducible Econometric Simulations By Christian Kleiber; Achim Zeileis
  5. MOSES: Model of Swedish Economic Studies By Gunnar Bårdsen, Ard den Reijer, Patrik Jonasson and Ragnar Nymoen
  6. An Enhanced Concave Program Relaxation for Choice Network Revenue Management By Joern Meissner; Arne Strauss; Kalyan Talluri
  7. Monitoring the unsecured interbank money market using TARGET2 data By Ronald Heijmans; Richard Heuver; Daniëlle Walraven
  8. The GDP Impact of Reform: A Simple Simulation Framework By Sebastian Barnes; Romain Bouis; Philippe Briard; Sean Dougherty; Mehmet Eris
  9. Heuristic model selection for leading indicators in Russia and Germany By Ivan Savin; Peter Winker
  10. Redistributive Taxation, Incentives, and the Intertemporal Evolution of Human Capital By Christian Ferreda; Matías Tapia
  11. Extreme Returns: The Case of Currencies By Carol Osler; Tanseli Savaser

  1. By: Kenneth Judd (Hoover Institution); Lilia Maliar (Universidad de Alicante); Serguei Maliar (Universidad de Alicante)
    Abstract: We use the stochastic simulation algorithm, described in Judd, Maliar and Maliar (2009), and the cluster-grid algorithm, developed in Judd, Maliar and Maliar (2010a), to solve a collection of multi-country real business cycle models. The following ingredients help us reduce the cost in high-dimensional problems: an endogenous grid enclosing the ergodic set, linear approximation methods, fixed-point iteration and efficient integration methods, such as non-product monomial rules and Monte Carlo integration combined with regression. We show that high accuracy in intratemporal choice is crucial for the overall accuracy of solutions and offer two approaches, precomputation and iteration-on-allocation, that can solve for intratemporal choice both accurately and quickly. We also implement a hybrid solution algorithm that combines the perturbation and accurate intratemporal-choice methods
    Keywords: heterogeneous agents, numerical methods, stochastic simulation, parameterized expectations algorithm, projection, perturbation.
    JEL: C63
    Date: 2011–01
  2. By: J. Edward Taylor
    Abstract: The purpose of this guideline is to make praticioners aware of simulation approaches for the evaluation of tourism projects. Simulation approaches are particularly useful when experimental or economic approaches for project evaluation are not feasible. For example, it usually is not possible to roll out a tourism-promotion program for a randomly chosen “treatment group” while excluding the program’s benefits for a “control group” at the tourist destination. The guideline explains why a simulation approach is useful for tourism impact analysis, what a simulation model for the economic analysis of tourism impacts looks like, and data requirements. With the help of an illustrative two-island model, the guideline shows how to construct different kinds of simulation models and how to use simulations to quantify the costs and benefits of tourism and tourism projects. The guideline concludes by discussing some specific IDB projects in which this methodology has been used for tourism impact analysis. The primary goal of this paper is to make development practitioners aware of simulation approaches for tourism impact analysis and of how to integrate these approaches into their project proposals, budgets, and terms of reference for expert consultants.
    Keywords: Tourism, Impact Evaluation, Regional Development, Simulation, General Equilibrium Models, Poverty, Development Effectiveness
    JEL: C81 L83 O12 O18 O22 R11 R58
    Date: 2010–12
  3. By: Touzi, Nizar; Manolarakis, Konstantinos; Crisan, Dan
    Abstract: We propose a generic framework for the analysis of Monte Carlo simulation schemes of backward SDEs. The general results are used to re-visit the convergence of the algorithm suggested by Bouchard and Touzi (2004) [6]. By keeping the higher order terms in the expansion of the Skorohod integrals resulting from the Malliavin integration by parts in [6], we introduce a variant of the latter algorithm which allows for a significant reduction of the numerical complexity. We prove the convergence of this improved Malliavin-based algorithm, and derive a bound on the induced error. In particular, we show that the price to pay for our simplification is to use a more accurate localizing function.
    Keywords: Malliavin calculus; Monte Carlo methods; Weak approximations; BDEs;
    JEL: C15
    Date: 2010
  4. By: Christian Kleiber; Achim Zeileis
    Abstract: Reproducibility of economic research has attracted considerable attention in recent years. So far, the discussion has focused on reproducibility of empirical analyses. This paper addresses a further aspect of reproducibility, the reproducibility of computational experiments. We examine the current situation in econometrics and derive a set of guidelines from our findings. To illustrate how computational experiments could be conducted and reported we present an example from time series econometrics that explores the finite-sample power of certain structural change tests.
    Keywords: computational experiment, reproducibility, simulation, software.
    Date: 2011–02
  5. By: Gunnar Bårdsen, Ard den Reijer, Patrik Jonasson and Ragnar Nymoen (Department of Economics, Norwegian University of Science and Technology)
    Abstract: MOSES is an aggregate econometric model for Sweden, estimated on quarterly data, and intended for short-term forecasting and policy simulations. After a presentation of qualitative model properties, the econometric methodology is summarized. The model properties, within sample simulations, and examples of dynamic simulation (model forecasts) for the period 2009q2-2012q4 are presented. We address practical issues relating to operational use and maintenance of a macro model of this type. The detailed econometric equations are reported in an appendix.
    Date: 2011–01–28
  6. By: Joern Meissner (Department of Management Science, Lancaster University Management School); Arne Strauss (Department of Management Science, Lancaster University Management School); Kalyan Talluri (ICREA & Universitat Pompeu Fabra, Ramon Trias Fargas 25-27, 08005 Barcelona, Spain)
    Abstract: The network choice revenue management problem models customers as choosing from an offerset, and the firm decides the best subset to offer at any given moment to maximize expected revenue. The resulting dynamic program for the firm is intractable and approximated by a deterministic linear program called the CDLP which has an exponential number of columns. However, under the choice-set paradigm when the segment consideration sets overlap, the CDLP is difficult to solve. Column generation has been proposed but finding an entering column has been shown to be NP-hard. In this paper, starting with a concave program formulation based on segment-level consideration sets called SDCP, we add a class of valid inequalities called product cuts, that project onto subsets of intersections. In addition we propose a natural direct tightening of the SDCP called kSDCP, and compare the performance of both methods on the benchmark data sets in the literature. Both the product cuts and the kSDCP method are very simple and easy to implement, work with general discrete choice models and are applicable to the case of overlapping segment consideration sets. In our computational testing SDCP with product cuts achieves the CDLP value at a fraction of the CPU time taken by column generation and hence has the potential to be scalable to industrial-size problems.
    Keywords: operations research, marketing, bid prices, yield management, heuristics, discrete-choice, network revenue management
    JEL: C61 M11 M31 L93 L83
    Date: 2011–01
  7. By: Ronald Heijmans; Richard Heuver; Daniëlle Walraven
    Abstract: We investigate the euro unsecured interbank money market during the current financial crisis. To identify the loans traded in this market and settled in TARGET2, we extend the algorithm developed by Furfine (1999) and adapt it to the European interbank loan market with maturity up to one year. This paper solves the problem of systematic errors which occur when you only look at overnight loans (as the Furfine algorithm does). These errors especially occur in times of (very) low interest rates. The algorithm allows us to track the actual interest rates rather than quoted interest rates on liquidity trading by participants of the Dutch part of the euro large value payment system (TARGET2-NL). The algorithm enables us to constitute the Dutch part of the EONIA, making it possible to compare the interest rates developments in the Dutch market to the European average ones. Based on the new algorithm, we develop a policy tool to monitor the interbank money market, both at macro level (whole market) and individual bank level (Money Market Monitoring Dashboard).
    Keywords: payment systems; financial stability; experiment; decision making
    JEL: E42 E44
    Date: 2011–01
  8. By: Sebastian Barnes; Romain Bouis; Philippe Briard; Sean Dougherty; Mehmet Eris
    Abstract: This paper presents a framework to assess the impact of a wide range of structural policy reforms on GDP per capita at various horizons by linking together previous empirical studies mostly carried out by the OECD. The simple accounting framework consists of reduced-form equations and offers a more tractable and realistic alternative to an estimated general equilibrium model. This comes at the expense of several potential shortcomings including inter alia insufficient account of interrelationships between policies or spillover effects, risks of double-counting the effects of certain reforms, endogeneity issues and the omission of interactions across different policy areas. Bearing these caveats in mind, the plausible scenarios suggest that the largest long-run GDP per capita gains may be obtained from reforms that would raise the quantity and quality of education, strengthen competition in product markets, reduce the level and/or duration of unemployment benefits, cut labour tax wedges and relax employment protection legislation. Past reforms in these areas might also have contributed to as much as half of GDP per capita growth in OECD countries in the decade prior to the recent financial and economic crisis. Simulations further indicate that addressing all policy weaknesses in each OECD country by aligning policy settings on the OECD average could raise GDP per capita by as much as 25% in the typical country.<P>L'impact des réformes sur le PIB : un cadre simple de simulation<BR>Cet article présente un cadre d’analyse pour évaluer l’impact sur le PIB par tête à différents horizons d’un large éventail de réformes de politiques structurelles en reliant ensemble des études empiriques précédemment réalisées pour la plupart par l’OCDE. Le cadre comptable simplifié est constitué d’équations sous forme réduite et offre une alternative plus flexible et plus réaliste qu’un modèle estimé d’équilibre général. Ceci présente néanmoins plusieurs limites potentielles incluant entre autres une prise en compte insuffisante des interrelations entre les politiques et les effets de retombées, des risques de double comptage des effets de certaines réformes, des problèmes d’endogénéité et l’omission des interactions au sein des différents domaines de politiques. Conscient de ces mises en garde, les scénarios plausibles suggèrent que les gains en PIB par tête à long terme les plus élevées pourraient provenir des réformes augmentant la quantité et la qualité de l’éducation, renforçant la concurrence sur le marché des produits, réduisant le niveau et/ou la durée des allocations chômage, diminuant le coin salarial et assouplissant la législation sur la protection de l’emploi. Les réformes passées dans ces domaines pourraient avoir contribué jusqu’à la moitié de la croissance du PIB par tête dans les pays de l’OCDE au cours de la décennie précédant la crise financière et économique récente. Les simulations indiquent en outre que traiter l’ensemble des points faibles de chaque pays de l’OCDE en alignant les positions des politiques sur la moyenne de l’OCDE pourrait accroître le PIB par tête jusqu’à 25% dans le pays moyen.
    Keywords: growth, productivity, employment, structural reforms, productivité, croissance, réforme structurelle, emploi
    JEL: E27 O43 O47
    Date: 2011–01–18
  9. By: Ivan Savin; Peter Winker
    Abstract: Business tendency survey indicators are widely recognized as a key instrument for business cycle forecasting. Their leading indicator property is assessed with regard to forecasting industrial production in Russia and Germany. For this purpose, vector autoregressive (VAR) models are specified and estimated to construct forecasts. As the potential number of lags included is large, we compare full–specified VAR models with subset models obtained using a Genetic Algorithm enabling ’holes’ in multivariate lag structures. The problem is complicated by the fact that a structural break and seasonal variation of indicators have to be taken into account. The models allow for a comparison of the dynamic adjustment and the forecasting performance of the leading indicators for both
    Keywords: Leading indicators, business cycle forecasts, VAR, model selection, genetic algorithms.
    Date: 2011–01–27
  10. By: Christian Ferreda; Matías Tapia
    Abstract: This paper contributes to the literature on redistributive taxation and human capital dynamics by explicitly analyzing the role of incentives in the education market where human capital is produced. We introduce an explicit education market with heterogeneous private schools in a dynamic stochastic general equilibrium model with overlapping generations and human capital accumulation. We use the model to simulate the effects of taxation on growth, intergenerational mobility, inequality, and welfare. Equalization in education expenditures reduces incentives for differentiation in the education market, with the distribution of education investments shifting towards the least productive schools. This has significant consequences on equilibrium outcomes, and highlights the importance of incorporating the role of intermediation when analyzing redistribution policies.
    Keywords: Human capital, school market, redistributive taxation, inequality, efficiency.
    JEL: E24 H21 I21
    Date: 2010
  11. By: Carol Osler (International Business School, Brandeis University); Tanseli Savaser (Department of Economics, Williams College)
    Abstract: This paper investigates how active price-contingent trading contributes to extreme returns even in the absence of news. Price-contingent trading, which is common across financial markets, includes algorithmic trading, technical trading, and dynamic option hedging. The paper highlights four properties of such trading that increase the frequency of extreme returns, and then estimates the relative of these properties using data from the foreign exchange market. The four key properties we consider are: (1) high kurtosis in the distribution of order sizes; (2) clustering of trades within the day; (3) clustering of trades at certain prices; and (4) positive and negative feedback between trading and returns. Calibrated simulations indicate that interactions among these properties are at least as important as any single one. Among individual properties, the orders’ size distribution and feedback effects have the strongest influence. Price-contingent trading could account for over half of realized excess kurtosis in currency returns.
    Keywords: Crash, Fat Tails,Kurtosis,Exchange Rates,Order Flow,High-Frequency,Microstructure,Jump Process,Value-At-Risk,Risk Management
    JEL: G1 F3
    Date: 2010–11

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