nep-cmp New Economics Papers
on Computational Economics
Issue of 2011‒05‒07
fifteen papers chosen by
Stan Miles
Thompson Rivers University

  1. From the currency rate quotations onto strings and brane world scenarios By D. Horvath; R. Pincak
  2. Solving Models with Incomplete Markets and Aggregate Uncertainty Using the Krusell-Smith Algorithm: A Note on the Number and the Placement of Grid Points By Michal Horvath
  3. American Options Based on Malliavin Calculus and Nonparametric Variance Reduction Methods By Lokman Abbas-Turki; Bernard Lapeyre
  4. Economic integration in the EuroMed: current status and review of studies By Joachim Jarreau
  5. The Potential for Exploiting Cross-media Environmental Effects from Conservation Practices in Maize-based Cropping Systems By Reeling, Carson J.; Gramig, Benjamin
  6. World Fertilizer Model—The WorldNPK Model By Francisco Rosas
  7. End-of-Life Inventory Problem with Phase-out Returns By Pourakbar, M.; Laan, E.A. van der; Dekker, R.
  8. Simulating the impacts of cash transfers on poverty and school attendance: The case of Cambodia By Meng, Channarith; Pfau, Wade Donald
  9. Rebalancing Growth in China: An International Perspective By Agnes Benassy-Quere; Benjamin Carton; Ludovic Gauvin
  10. Contagion at the interbank market with stochastic LGD By Memmel, Christoph; Sachs, Angelika; Stein, Ingrid
  11. Accounting for Product Substitution in the Analysis of Food Taxes Targeting Obesity By Miao, Zhen; Beghin, John C.; Jensen, Helen H.
  12. Capital Regulation, Monetary Policy and Financial Stability By Pierre-Richard Agénor; K. Alper; Luiz A. Pereira da Silva
  13. Growth, expectations and tariffs By Honkapohja , Seppo; Turunen, Arja H; Woodland, Alan D
  14. Release of the kraken: a novel money multiplier equation's debut in 21st century banking By Hanley, Brian P.
  15. The Impact of Price-Induced Hedging Behavior on Commodity Market Volatility By Kauffman, Nathan; Hayes, Dermot

  1. By: D. Horvath; R. Pincak
    Abstract: In the paper, we study numerically the projections of the real exchange rate dynamics onto the string-like topology. Our approach is inspired by the contemporary movements in the string theory. The string map of data is defined here by the boundary conditions, characteristic length, real valued and the method of redistribution of information. As a practical matter, this map represents the detrending and data standardization procedure. We introduced maps onto 1-end-point and 2-end-point open strings that satisfy the Dirichlet and Neumann boundary conditions. The questions of the choice of extra-dimensions, symmetries, duality and ways to the partial compactification are discussed. Subsequently, we pass to higher dimensional and more complex objects. The 2D-Brane was suggested which incorporated bid-ask spreads. Polarization by the spread was considered which admitted analyzing arbitrage opportunities on the market where transaction costs are taken into account. The model of the rotating string which naturally yields calculation of angular momentum is suitable for tracking of several currency pairs. The systematic way which allows one suggest more structured maps suitable for a simultaneous study of several currency pairs was analyzed by means of the G\^{a}teaux generalized differential calculus. The effect of the string and brane maps on test data was studied by comparing their mean statistical characteristics. The study revealed notable differences between topologies. We review the dependence on the characteristic string length, mean fluctuations and properties of the intra-string statistics. The study explores the coupling of the string amplitude and volatility.
    Date: 2011–04
  2. By: Michal Horvath
    Abstract: This paper shows that numerical solutions to models with incomplete markets and aggregate uncertainty obtained using the Krusell and Smith (1998) algorithm are sensitive to the parameterization of the grid in the aggregate asset holdings direction. Higher moments of the cross-sectional distribution of asset holdings can be particularly affected, which is important for welfare analysis. Using grids that are denser around the mean of the ergodic distribution of individual asset holdings can enhance the consistency of the results across parameterizations. The accuracy of the approximation to individual decision functions can be much improved this way.
    Keywords: Incomplete Markets, Aggregate Uncertainty, Heterogeneous agents, Simulations, Numerical Solutions.
    JEL: C6 C63 D52 E21
    Date: 2011–04
  3. By: Lokman Abbas-Turki (LAMA); Bernard Lapeyre (CERMICS)
    Abstract: This paper is devoted to pricing American options using Monte Carlo and the Malliavin calculus. Unlike the majority of articles related to this topic, in this work we will not use localization fonctions to reduce the variance. Our method is based on expressing the conditional expectation E[f(St)/Ss] using the Malliavin calculus without localization. Then the variance of the estimator of E[f(St)/Ss] is reduced using closed formulas, techniques based on a conditioning and a judicious choice of the number of simulated paths. Finally, we perform the stopping times version of the dynamic programming algorithm to decrease the bias. On the one hand, we will develop the Malliavin calculus tools for exponential multi-dimensional diffusions that have deterministic and no constant coefficients. On the other hand, we will detail various nonparametric technics to reduce the variance. Moreover, we will test the numerical efficiency of our method on a heterogeneous CPU/GPU multi-core machine.
    Date: 2011–04
  4. By: Joachim Jarreau
    Abstract: This article draws a picture of the current status of the liberalization process in the Euro-Mediterranean region, and reviews existing studies of this process. Economic integration among the South-Med countries (SMCs) has started in the middle 1990s through intra-regional agreements (GAFTA, Agadir Agreement) and bilateral agreements with the EU. Econometric studies using gravity models generally found important trade creation effects for intra-regional trade, but smaller and asymmetric effects from EU-Med agreements, with an increase of export flows from the EU but no increase of flows in the other direction. Simulations with CGE models shows the main sources of gains (trade creation) and of losses (trade diversion, terms of trade) for SMCs. Studies also suggest that a dismantling of non-tariff barriers and of barriers in services trade could yield substantial gains for SMCs. A table with existing agreements and a picture of economic flows in the region can be found in the annex.
    Keywords: Economic integration; EuroMed; Gravity models; Computable general equilibrium
    JEL: F15 F17 O24 O53 O55
    Date: 2011–03
  5. By: Reeling, Carson J.; Gramig, Benjamin
    Keywords: greenhouse gas, conservation practices, nonpoint source pollution, genetic algorithm, optimization, Environmental Economics and Policy,
    Date: 2011
  6. By: Francisco Rosas
    Abstract: We introduce a world fertilizers model that is capable of producing fertilizer demand projections by crop, by country, by macronutrients, and by year. For each crop, the most relevant countries in terms of production, consumption, or trade are explicitly modeled. The remaining countries are modeled, for each crop, within a regional aggregate. The nutrient coverage includes nitrogen (N), phosphorous (P), and potassium (K). In this report we present the data and procedures used to set up the model as well as the assumptions made. The fertilizer model interacts with the yield equations of the FAPRI-ISU model (Food and Agricultural Policy Research Institute at Iowa State University), and by means of a set of production elasticities, projects each nutrient’s application rate per hectare for each commodity and each country covered by the FAPRI-ISU model. Then, the application rates and the areas projected by FAPRI-ISU are used to obtain projections of fertilizer demand from agriculture on a global scale. With this fertilizer module, policies that directly affect fertilizer markets, such as input taxes or subsidies, quantity use restrictions, and trade restrictions, can now be explicitly formulated and evaluated. The effects of these policies on global agricultural markets and on greenhouse gas emissions can be evaluated with the FAPRI-ISU model and the Greenhouse Gas in Agriculture Simulation Model (GreenAgSiM). Also, any other policy affecting commodity markets such as input and output price shocks, biofuels mandates, and land-use change can now be evaluated with regard to its impacts on the world fertilizer markets.
    Keywords: agriculture, fertilizer, nitrogen, phosphorous, policy analysis, potassium, projections. JEL codes: Q10, Q11, Q18
    Date: 2011–04
  7. By: Pourakbar, M.; Laan, E.A. van der; Dekker, R.
    Abstract: We consider the service parts end-of-life inventory problem of a capital goods manufacturer in the final phase of its life cycle. The final phase starts as soon as the production of parts terminates and continues until the last service contract expires. Final order quantities are considered a popular tactic to sustain service fulfillment obligations and to mitigate the effect of obsolescence. In addition to the final order quantity, other sources to obtain serviceable parts are repairing returned defective items and retrieving parts from phase-out returns. Phase-out returns happen when a customer replaces an old system platform with a next generation one and returns the old product to the original equipment manufacturer (OEM). These returns can well serve the demand for service parts of other customers still using the old generation of the product. In this paper, we study the decision-making complications stemming from phase-out occurrence. We use a finite horizon Markov decision process to characterize the structure of the optimal inventory control policy. We show that the optimal policy consists of a time varying threshold level for item repair. Furthermore, we study the value of phase-out information by extending the results to cases with an uncertain phase-out quantity or an uncertain schedule. Numerical analysis sheds light on the advantages of the optimal policy compared to some heuristic policies.
    Keywords: end-of-life inventory management;spare parts;phase-out returns
    Date: 2011–04–27
  8. By: Meng, Channarith; Pfau, Wade Donald
    Abstract: Using the Cambodia Socioeconomic Survey 2004 and employing micro-static simulation techniques, we measure the potential impacts of cash transfer programs for children to identify targeted groups that will have the most effect on poverty and school attendance. We conclude that the largest impacts occur by targeting poor children. If this proves to be too administratively costly, then targeting children in rural areas or targeting all children living in the ten poorest provinces will also yield significant poverty reduction. With regard to improving school attendance, the same targeted groups generally provide the biggest impacts as well, though the impacts on school attendance tend to be smaller than on poverty reduction.
    Keywords: cash transfer; poverty; school attendance; Cambodia
    JEL: I38 H53 H52
    Date: 2011–04
  9. By: Agnes Benassy-Quere; Benjamin Carton; Ludovic Gauvin
    Abstract: Based on simulations of an original DGE model of the US, Chinese and Euro area economies with financial frictions and various monetary regimes, the paper shows that the contribution of China in global rebalancing should primarily rely on structural policies aiming at reducing aggregate savings in China. The role of the exchange-rate regime would be minor under standard monetary policies, although more important if monetary policies in advanced countries are constrained, as they are today. Finally, relying only on a change in China’s monetary regime (without structural reforms) could end up in delaying rather than accelerating the rebalancing, depending on China’s policy regarding accumulated reserves.
    Keywords: Global imbalances; exchange rate regimes; capital controls; China
    JEL: F32 F42 F47
    Date: 2011–03
  10. By: Memmel, Christoph; Sachs, Angelika; Stein, Ingrid
    Abstract: This paper investigates contagion at the German interbank market under the assumption of a stochastic loss given default (LGD). We combine a unique data set about the LGD of interbank loans with data about interbank exposures. We find that the frequency distribution of the LGD is u-shaped. Under the assumption of a stochastic LGD, simulation results show a more fragile banking system than under the assumption of a constant LGD. There are three types of banks concerning their tendency to trigger contagion: banks with strongly varying impact, banks whose impact is relatively constant, and banks with no direct impact. --
    Keywords: interbank market,contagion,stochastic LGD
    JEL: D53 E47 G21
    Date: 2011
  11. By: Miao, Zhen; Beghin, John C.; Jensen, Helen H.
    Abstract: We extend the existing literature on food taxes targeting obesity. First, we incorporate the implicit substitution between sugar and fat nutrients implied by a complete food demand system and by conditioning on how food taxes affect total calorie intake. Second, we propose a methodology that accounts for the ability of consumers to substitute leaner low-fat and low-sugar items for rich food items within the same food group. This substitution is integrated into a demand system in addition to substitution among food groups. Simulations of a tax on added sugars show that the impact of the tax on consumption patterns is understated and the effect on welfare loss overstated when abstracting from this substitution within food groups.
    Keywords: discretionary calories, fat, food demand, health policy nutrition, low-fat, low-sugar substitutes, obesity, sugar, sweeteners, tax, Agricultural and Food Policy, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety, Health Economics and Policy, I18, Q18,
    Date: 2011
  12. By: Pierre-Richard Agénor; K. Alper; Luiz A. Pereira da Silva
    Abstract: This paper examines the roles of bank capital regulation and monetary policy in mitigating procyclicality and promoting macroeconomic and financial stability. The analysis is based on a dynamic stochastic model with imperfect credit markets. Macroeconomic (financial) stability is defined in terms of the volatility of nominal income (real house prices). Numerical experiments show that even if monetary policy can react strongly to inflation deviations from target, combining a credit-augmented interest rate rule and a Basel III-type countercyclical capital regulatory rule may be optimal for promoting overall economic stability. The greater the degree of interest rate smoothing, and the stronger the policymaker’s concern with macroeconomic stability, the larger is the sensitivity of the regulatory rule to credit growth gaps.
    Date: 2011–04
  13. By: Honkapohja , Seppo (Bank of Finland); Turunen, Arja H (University of New Orleans. Department of Economics and Finance); Woodland, Alan D (University of New South Wales)
    Abstract: We study a many-country endogenous growth model in which decisions about innovation and new investment are influenced by growth expectations. Adaptive learning dynamics determine the country-specific short-run transition paths. The countries differ in basic structural parameters and may impose tariffs on imports of capital goods. Numerical experiments illustrate the adjustment dynamics that follow the use of tariffs. We show that countries that limit trade in capital goods can experience dynamic gains both in growth and in utility and that such gains persist longer the larger the structural advantages of the region that applies tariffs. Substantial differences in levels of innovation, consumption, output and utility can appear, and asymmetries in economic outcomes that were present before trade restrictions are made more severe.
    Keywords: endogenous growth; expectations; learning; short-run dynamics; tariffs; complementary capital goods
    JEL: F15 F43
    Date: 2011–04–20
  14. By: Hanley, Brian P.
    Abstract: Use of a promise to pay by a bank to insure an outstanding loan in order to return the value of the insured amount into capital for use in writing a new loan is an invention in banking with calculably greater potential economic impact than the original invention of reserve banking. The consequence of this lending invention is to render the existing money multiplier equations of reserve banking obsolete whenever it is used. The equations describing this multiplier do not converge. Each set of parameters for reserve percentage, nesting depth, etc. creates a unique logarithmic curve rather than approaching a limit. Thus it is necessary to show behavior of this new equation by numerical methods. It is shown that remarkable multipliers occur and early nesting iterations can raise the multiplier into the thousands. This money creation innovation has the demonstrated capacity to impact nations. Understanding this new multiplier is necessary for economic analyses of the GFC. --
    Keywords: GFC,CDS,AIG,money multiplier,banking multiplier
    JEL: E20 E51 E17 H56 H63
    Date: 2011
  15. By: Kauffman, Nathan; Hayes, Dermot
    Abstract: The utility maximization problem of a grain producer is formulated and solved numerically under prospect theory as an alternative to expected utility theory. Conventional theory posits that the optimal hedging position of a producer is not affected solely due to changes in the level of futures prices. However, a strong degree of positive correlation is apparent in the data. Our results show that with prospect theory serving as the underlying behavioral framework, the optimal hedge of a producer is affected by changes in futures price levels. The implications of this price-induced hedging behavior on spot prices and volatility are subsequently considered.
    Keywords: futures markets, hedging, prospect theory, risk preferences, Agribusiness, Institutional and Behavioral Economics, Risk and Uncertainty, D03, D81, G11, Q13,
    Date: 2011

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