New Economics Papers
on Computational Economics
Issue of 2011‒04‒23
fourteen papers chosen by

  1. Trade Liberalisation and Climate Change: A CGE Analysis of the Impacts on Global Agriculture By Calzadilla, Alvaro; Rehdanz, Katrin; Tol, Richard S. J.
  2. FiMod - a DSGE model for fiscal policy simulations By Stähler, Nikolai; Thomas, Carlos
  3. Mobility, Competition, and the Distributional Effects of Tax Evasion By James Alm; Edward B. Sennoga
  4. Recent Advances in Applied Mathematics By Manoj Jha, Stephen Lagakos Leonid Perlovsky; Covaci, Brindusa; Nikos Mastorakis, Azami Zaharim
  5. Is a probabilistic modeling really useful in financial engineerinng?---A-t-on vraiment besoin d'un modèle probabiliste en ingénierie financière ? By Michel Fliess; Cédric Join; Frédéric Hatt
  6. Structural reforms and macroeconomic performance in the euro area countries: a model-based assessment By Sandra Gomes; Pascal Jacquinot; Matthias Mohr; Massimiliano Pisani
  7. Lifecycle Impact of Alternative Higher Education Finance Systems in Ireland By Flannery, Darragh; O'Donoghue, Cathal
  8. Utilising Microsimulation to Estimate New Marginal Returns to Education: Ireland 1987-2005 By Flannery, Darragh; O'Donoghue, Cathal
  9. Should Sweden Join the EMU? An Analysis of General Equilibrium Effects through Trade By Kari E.O. Alho
  10. Regional and Sectoral Estimates of the Social Cost of Carbon: An Application of FUND By Anthoff, David; Rose, Steven K.; Tol, Richard S. J.; Waldhoff, Stephanie
  11. A new targeting - a new take-up? Non-take-up of social assistance in Germany after social policy reforms By Bruckmeier, Kerstin; Wiemers, Jürgen
  12. Learning During a Crisis: the SARS Epidemic in Taiwan By Daniel Bennett; Chun-Fang Chiang; Anup Malani
  13. Sustainability of Government Debt in the EU By Lejour, Arjan; Lukkezen, Jasper; Veenendaal, Paul
  14. Long-run growth expectations and 'global imbalances' By Hoffmann, Mathias; Krause, Michael; Laubach, Thomas

  1. By: Calzadilla, Alvaro; Rehdanz, Katrin; Tol, Richard S. J.
    Abstract: Based on predicted changes in the magnitude and distribution of global precipitation, temperature and river flow under the IPCC SRES A1B and A2 scenarios, this study assesses the potential impacts of climate change and CO2 fertilization on global agriculture, and its interactions with trade liberalisation as proposed for the Doha Development Round. The analysis uses the new version of the GTAP-W model, which distinguishes between rainfed and irrigated agriculture and implements water as an explicit factor of production for irrigated agriculture. Significant reductions in agricultural tariffs lead to modest changes in regional water use. Patterns are non-linear. On the regional level water use may go up for partial liberalization, and down for more complete liberalization. This is because different crops respond differently to tariff reductions, and because trade and competition matter too. Moreover, trade liberalization tends to reduce water use in water scarce regions, and increase water use in water abundant regions, even though water markets do not exist in most countries. Considering impacts of climate change the results show that global food production, welfare and GDP fall over time while food prices increase. Larger changes are observed under the SRES A2 scenario for the medium term (2020) and under the SRES A1B scenario for the long term (2050). Combining scenarios of future climate change with trade liberalization countries are affected differently. However, the overall effect on welfare does not change much.
    Keywords: Climate change/competition/impacts/Impacts of climate change/scenarios
    Date: 2011–03
  2. By: Stähler, Nikolai; Thomas, Carlos
    Abstract: This paper develops a medium-scale dynamic, stochastic, general equilibrium (DSGE) model for fiscal policy simulations. Relative to existingmodels of this type, our model incorporates a two-country monetary union structure, which makes it well suited to simulate fiscal measures by relatively large countries in a currency area. We also provide a notable degree of disaggregation on the government expenditures side, by explicitly distinguishing between (productivity-enhancing) public investment, public purchases and the public sector wage bill. Finally, we consider a labor market characterized by search and matching frictions, which allows to analyze the response of equilibrium unemployment to fiscal measures. In order to illustrate some of its applications, and motivated by recent policy debate in the Euro Area, we calibrate the model to Spain and the rest of the area and simulate a number of fiscal consolidation scenarios. We find that, in terms of output and employment losses, fiscal consolidation is the least damaging when achieved by reducing the public sector wage bill, whereas it is most damaging when carried out by cutting public investment. --
    Keywords: General Equilibrium,Fiscal Policy Simulations,Labor Market Search
    JEL: E24 E32 E62 H20 H50
    Date: 2011
  3. By: James Alm (Department of Economics, Tulane University); Edward B. Sennoga (Uganda Field Office, African Development Bank)
    Abstract: The standard assumption underlying the incidence of tax evasion is that the beneficiaries are those who successfully evade their taxes. However, a general equilibrium process of adjustment should occur through changes in the relative prices of both commodities and factors of production as resources move into and out of the relevant activities, and these changes should tend to reduce any initial benefit from evasion. In this paper we analyze these incidence effects, using a computable general equilibrium model of an economy with a formal (and taxed) sector and an informal (and untaxed) sector, in order to examine how much of the initial benefit of income tax evasion is retained by the evaders and how much is shifted via factor and commodity price changes stemming from mobility. Our simulation results show that the household that successfully evades its income tax liabilities has a post-evasion welfare that is only slightly higher than its post-tax welfare if it had fully complied with taxes. Further, while this household keeps some of its initial increase in welfare, a large percentage of this initial gain is competed away as a result of mobility that reflects competition and entry into the informal sector. Consequently, the evading household benefits only marginally from successful income tax evasion, and this advantage diminishes with mobility via competition/entry in the informal sector.
    Keywords: tax evasion, computable general equilibrium model, social accounting matrix
    JEL: H26 H22
    Date: 2011–04
  4. By: Manoj Jha, Stephen Lagakos Leonid Perlovsky (World Scientific and Engineering Academy and Society); Covaci, Brindusa (Osterreichish-Rumanischer Akademischer Verein); Nikos Mastorakis, Azami Zaharim (World Scientific and Engineering Academy and Society)
    Abstract: This year the AMERICAN CONFERENCE on APPLIED MATHEMATICS (AMERICANMATH '10) was held at Harvard University, ambridge, USA, January 27-29, 2010. The conference remains faithful to its original idea of providing a platform to discuss linear algebra and applications, numerical analysis and applications, differential equations and applications, probabilities, statistics, operational research, optimization and applications, algorithms, discrete mathematics, systems, communications, control, computers, education etc. with participants from all over the world, both from academia and from industry.
    Keywords: numerical analysis and applications; differential equations and applications; probabilities; statistics; operational research; optimization and applications; algorithms; discrete mathematics; systems
    JEL: A10
    Date: 2010–01–27
  5. By: Michel Fliess (LIX - Laboratoire d'informatique de l'école polytechnique - CNRS : UMR7161 - Polytechnique - X); Cédric Join (CRAN - Centre de recherche en automatique de Nancy - CNRS : UMR7039 - Université Henri Poincaré - Nancy I - Institut National Polytechnique de Lorraine (INPL), INRIA Saclay - Ile de France - ALIEN - INRIA - Polytechnique - X - Ecole Centrale de Lille - CNRS : UMR8146); Frédéric Hatt (Lucid Capital Management - Lucid Capital Management)
    Abstract: A new standpoint on financial time series, without the use of any mathematical model and of probabilistic tools, yields not only a rigorous approach of trends and volatility, but also efficient calculations which were already successfully applied in automatic control and in signal processing. It is based on a theorem due to P. Cartier and Y. Perrin, which was published in 1995. The above results are employed for sketching a dynamical portfolio and strategy management, without any global optimization technique. Numerous computer simulations are presented.
    Keywords: Quantitative finance; dynamic portfolio management; strategy; time series; trends; volatility; Kalman filters; noise removal; numerical differentiation; nonstandard analysis
    Date: 2011–05–27
  6. By: Sandra Gomes (Bank of Portugal, Economic Research Department, Av. Almirante Reis 71, 1150-012 Lisbon, Portugal.); Pascal Jacquinot (European Central Bank, Directorate General of Research, Kaiserstrasse 29, D-60311, Frankfurt am Main, Germany.); Matthias Mohr (European Central Bank, Directorate General of Economics, Kaiserstrasse 29, D-60311, Frankfurt am Main, Germany.); Massimiliano Pisani (Bank of Italy, Research Department, Via Nazionale 91, 00184 Rome, Italy.)
    Abstract: We quantitatively assess the macroeconomic effects of country-specific supply-side reforms in the euro area by simulating EAGLE, a multi-country dynamic general equilibrium model. We consider reforms in the labor and services markets of Germany (or, alternatively, Portugal) and the rest of the euro area. Our main results are as follows. First, there are benefits from implementing unilateral structural reforms. A reduction of markup by 15 percentage points in the German (Portuguese) labor and services market would induce an increase in the long-run German (Portuguese) output equal to 8.8 (7.8) percent. As reforms are implemented gradually over a period of five years, output would smoothly reach its new long-run level in seven years. Second, cross-country coordination of reforms would add extra benefits to each region in the euro area, by limiting the deterioration of relative prices and purchasing power that a country faces when implementing reforms unilaterally. This is true in particular for a small and open economy such as Portugal. Specifically, in the long run German output would increase by 9.2 percent, Portuguese output by 8.6 percent. Third, cross-country coordination would make the macroeconomic performance of the different regions belonging to the euro area more homogeneous, both in terms of price competitiveness and real activity. Overall, our results suggest that reforms implemented apart by each country in the euro area produce positive effects, cross-country coordination produces larger and more evenly distributed (positive) effects. JEL Classification: C53, E52, F47.
    Keywords: Economic policy, structural reforms, dynamic general equilibrium modeling, competition, markups, monetary policy.
    Date: 2011–04
  7. By: Flannery, Darragh (University of Limerick); O'Donoghue, Cathal (Teagasc Rural Economy Research Centre)
    Abstract: With increasing numbers of young people participating in higher education in Ireland and a heavy reliance of higher education institutions on state funding, the introduction of an alternative finance system for Ireland has been muted over the past number of years. However, no study has been conducted to gauge the potential impact of such measures. In this chapter we utilize a dynamic microsimulation model developed for Ireland to simulate the impact of both an income contingent loan system (ICL) and a graduate tax system from a fiscal and redistributional viewpoint and to analyze the repayment length under the former system. Our results suggest that an ICL system would is more equitable, while the graduate tax system would be a better alternative from a fiscal viewpoint. The results also illustrate the important of the interest rate attached to any future student loan system within Ireland from a fiscal viewpoint.
    Keywords: higher education financing, dynamic microsimulation, income contingent loan, graduate tax
    JEL: I22 I28
    Date: 2011–04
  8. By: Flannery, Darragh (University of Limerick); O'Donoghue, Cathal (Teagasc Rural Economy Research Centre)
    Abstract: In this paper we utilise microsimulation techniques in the form of an income generation model and a tax/benefit model to estimate both the fiscal and net private return to education at a marginal level. This is carried out empirically using Irish data across the period 1987-2005 and is the first study to utilise these techniques in such a manner. The results indicate that a more generous tax/benefit system, combined with a greater state burden of the cost of education over this period may have helped increase the individual’s return to education, while reducing the state return from investing in education. The methodology employed allows us to specifically analyse the impact of various components of the tax/benefit system upon these returns across time and show the role of income tax changes upon the return to education for the individual and the state.
    Keywords: returns to education, microsimulation, income generation model
    JEL: I22 I28
    Date: 2011–04
  9. By: Kari E.O. Alho
    Abstract: The paper considers whether Sweden should join the EMU as based on general equilibrium (GE) effects through reduced trade barriers linked to the single cur-rency. We use in this evaluation a gravity model for trade in Europe derived and estimated in the paper, and the estimates of trade barriers linked to EMU reached in the literature. First, we present an alternative derivation of the gravity equation for foreign trade, which is explicitly based on monopolistic competition in the export markets. In contrast to the usual specification, our model allows for the realistic assumption of asymmetry in mutual trade flows. We then present a straightforward methodology how to carry out a simulation, based on the estimated model, of GE effects related to a change in a trade barrier. Numeri-cally, we apply this to analyse the effects of a possible Swedish entrance into EMU. The effects are quite clearly in favour of EMU enlargement, and do not indicate a trade diver-sion effect either for the incumbent EMU countries or the rest of the European countries. However, a stochastic simulation of the effects reveals that there is a substantial uncer-tainty related to the effects of such a change in policies.
    Keywords: EMU, Sweden, gravity model, general equilibrium effects, trade barriers
    JEL: F12 F15
    Date: 2011–04–13
  10. By: Anthoff, David; Rose, Steven K.; Tol, Richard S. J.; Waldhoff, Stephanie
    Abstract: The social cost of carbon is an estimate of the benefit of reducing CO2 emissions by one ton today. As such it is a key input into cost-benefit analysis of climate policy and regulation. We provide a set of new estimates of the social cost of carbon from the integrated assessment model FUND 3.5 and present a regional and sectoral decomposition of our new estimate. China, Western Europe and the United States have the highest share of harmful impacts, with the precise order depending on the discount rate. The most important sectors in terms of impacts are agriculture and increased energy use for cooling. We present an extensive sensitivity analysis with respect to the discount rate, equity weights, different socio economic scenarios and values for the climate sensitivity parameter.
    Keywords: cost/Social cost of carbon/cost-benefit analysis/Climate policy/Policy/regulation/decomposition/europe/impacts/discount rate/energy use/equity/scenarios
    Date: 2011–02
  11. By: Bruckmeier, Kerstin (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Wiemers, Jürgen (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "We present first estimates of rates of non-take-up for social assistance in Germany after the implementation of major social policy reforms in 2005. The analysis is based on a microsimulation model, which includes a detailed description of the German social assistance programme. Our findings suggest a moderate decrease in non-take-up compared to estimates before the reform. In order to identify the determinants of claiming social assistance, we estimate a model of take-up behaviour which considers potential endogeneity of the benefit level. The estimations reveal that the degree of needs, measured as the social assistance benefit level a household is eligible for, and the expected duration of eligibility are the key determinants of the take-up decision, while costs of claiming seem to play a minor role." (Author's abstract, IAB-Doku) ((en))
    JEL: I38 H31 C15
    Date: 2011–04–13
  12. By: Daniel Bennett; Chun-Fang Chiang; Anup Malani
    Abstract: When SARS struck Taiwan in the spring of 2003, many people feared that the disease would spread through the health care system. As a result, outpatient medical visits fell by over 30 percent in the course of a few weeks. This paper examines how both public information (SARS incidence reports) and private information (the behavior and opinions of peers) contributed to this public reaction. We identify social learning through a difference-in-difference strategy that compares longtime community residents to recent arrivals, who are less socially connected. We find that people learned from both public and private sources during SARS. A dynamic simulation based on the regressions shows that social learning magnified and lengthened the response to SARS.
    JEL: D83 I1
    Date: 2011–04
  13. By: Lejour, Arjan; Lukkezen, Jasper; Veenendaal, Paul
    Abstract: This paper addresses the sustainability of government debt in Europe and is motivated by the recent debt increases following the crisis. We evaluate the sustainability in a time frame of ten years in which governments will be able to implement budget rules to get budget deficits under control. We develop a fiscal sustainability model for selected EMU member states that uses stochastic inputs based on historic data, closely following van Wijnbergen’s (van Wijnbergen and Budina, 2008) approach. We simulate the development of government debt as a percentage of GDP and show its expectation value including a confidence interval for a member state conditional on deficit reduction scenarios and the behaviour of other EMU member states. Using OECD projections as a baseline, we find that without additional fiscal consolidation and taking into account the public costs of ageing until the end of the projection period, budget deficits in all selected EMU countries will rise and sovereign debt is not sustainable, apart from Belgium. Even ignoring the cost of ageing, consolidation of sovereign debt is necessary for nearly all EMU countries. The consolidation proposed by the OECD would eliminate the doubts on sustainability of Belgium, Dutch, German, Italian, Portuguese and French bonds. For Ireland, Greece and Spain additional actions are required on top of the consolidation in the OECD projections. Together with a review of spillovers and stress-tests performed with our model we conclude that coordination of fiscal policies in the EMU is necessary.
    Keywords: EU; government debt; cross border spillovers; euro
    JEL: E52 E6 H71 H63
    Date: 2010–06–07
  14. By: Hoffmann, Mathias; Krause, Michael; Laubach, Thomas
    Abstract: This paper examines to what extent the build-up of 'global imbalances' since the mid-1990s can be explained in a purely real open-economy DSGE model in which agents' perceptions of long-run growth are based on filtering observed changes in productivity. We show that long-run growth estimates based on filtering U.S. productivity data comove strongly with long-horizon survey expectations. By simulating the model in which agents filter data on U.S. productivity growth, we closely match the U.S. current account evolution. Moreover, with household preferences that control the wealth effect on labor supply, we can generate output movements in line with the data. --
    Keywords: open economy DSGE models,trend growth,Kalman filter,real-time data,news and business cycles,current account
    JEL: F32 E32 D83
    Date: 2011

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