nep-cmp New Economics Papers
on Computational Economics
Issue of 2011‒06‒04
nine papers chosen by
Stan Miles
Thompson Rivers University

  1. Computation in Economics By K. Vela Velupillai; Stefano Zambelli
  2. Dynamic CGE-model with heterogeneous forest biomass: Applications to climate policy By Furtenback, Örjan
  3. The Epistemology of Simulation, Computation and Dynamics in Economics Ennobling Synergies, Enfeebling 'Perfection' By K. Vela Velupillai; Stefano Zambelli
  4. Climate Change and Agriculture In South Asia: Looking for An Optimal Trade Policy By Laborde, David
  5. FiMod - a DSGE model for fiscal policy simulations By Nikolai Stähler; Carlos Thomas
  6. Analytic results and weighted Monte Carlo simulations for CDO pricing By Marcell Stippinger; B\'alint Vet\H{o}; \'Eva R\'acz; Zsolt Bihary
  7. Optimal Policy Instruments for Externality-Producing Durable Goods Under Time Inconsistency By Garth Heutel
  8. Introduction to the Phillips Machine and the Analogue Computing Tradition in Economics By K. Vela Velupillai
  9. On Exact and Approximate Solutions for Hard Problems: An Alternative Look By R. S. Bartholo; C. A. Cosenza; F. A. Doria; M. Doria; A. Teixeira

  1. By: K. Vela Velupillai; Stefano Zambelli
    Abstract: This is an attempt at a succinct survey, from methodological and epistemological perspectives, of the burgeoning, apparently unstructured, field of what is often – misleadingly – referred to as computational economics. We identify and characterise four frontier research fields, encompassing both micro and macro aspects of economic theory, where machine computation play crucial roles in formal modelling exercises: algorithmic behavioural economics, computable general equilibrium theory, agent based computational economics and computable economics. In some senses these four research frontiers raise, without resolving, many interesting methodological and epistemological issues in economic theorising in (alternative) mathematical modes
    Keywords: Classical Behavioural Economics, Computable General Equilibrium theory, Agent Based Economics, Computable Economics, Computability, Constructivity, Numerical Analysis
    Date: 2010
  2. By: Furtenback, Örjan (CERE, Centre for Environmental and Resource Economics)
    Abstract: This study introduces a framework for modeling a renewable forest biomass stock interacting with economic sectors in a competitive economy. The equilibrium is formulated as a mixed complementary problem (which explicitly represents weak inequalities and complementary among decision variables and equilibrium conditions). The complementarity format permits detailed modeling of the growth and harvest of a biomass stock together with a second-best characterization of the overall economy. First the complementarity features of economic equilibrium and its integration with an ecological representation of the biomass are provided. Then a stylized numerical example of a dynamic computable general equilibrium model is presented. Finally, illustrative applications of the model for gauging the likely effects of environmental subsidies and taxes intended to promote increases CO2 storage in forest biomass are given, the results are discussed.
    Keywords: Dynamic CGE; Ecosystem modeling; Inter-temporal optimization; Infinite-horizon equilibrium
    JEL: C68 D58 Q26
    Date: 2011–05–27
  3. By: K. Vela Velupillai; Stefano Zambelli
    Abstract: Lehtinen and Kuorikoski ([73]) question, provocatively, whether, in the context of Computing the Perfect Model, economists avoid - even positively abhor - reliance on simulation. We disagree with the mildly qualified affirmative answer given by them, whilst agreeing with some of the issues they raise. However there are many economic theoretic, mathematical (primarily recursion theoretic and constructive) - and even some philosophical and epistemological - infelicities in their descriptions, definitions and analysis. These are pointed out, and corrected; for, if not, the issues they raise may be submerged and subverted by emphasis just on the unfortunate, but essential, errors and misrepresentations
    Keywords: Simulation, Computation, Computable, Analysis, Dynamics, Proof, Algorithm
    Date: 2010
  4. By: Laborde, David
    Abstract: This paper aims to study how alternative trade policies will help mitigate the effects of climate change in agriculture in South Asia. We use a modified version of MIRAGE CGE for long term projections and allowing modeling of climate change effects (impact on yield) at a subregional level (163 geographical units at the world level) to simulate the effects of 13 SRES scenarios in 8 different trade policy landscapes. Based on these results, we discuss the ranking of trade policy options based on expected values but also in terms of variance using the theory of decision in uncertainty. Choices between unilateral and regional strategies for the countries of the sub regions are compared. Our results confirm that South Asia will be one of the most adversely affected regions in terms of the impacts of climate change on agricultural yield. Both the overall level of economic activity and trade flows will react to this change (-0.5 percent of real income for the region in average, up to -4 percent for Pakistan). Beyond national real income, we also look at the distributional effects of climate change. Unskilled worker real wages, proxy for poor people income, are largely and generally negatively impacted by climate change. We show that trade policies weakly affect the overall economic impact of climate change but leads to more significant changes for the poor.
    Keywords: Climate Change, Trade Policy, Computable General Equilibrium, Environmental Economics and Policy, International Relations/Trade, Q54, C68, N5, N75, O24, F13, Q11, Q17,
    Date: 2011
  5. By: Nikolai Stähler (Deutsche Bundesbank); Carlos Thomas (Banco de España)
    Abstract: This paper develops a medium-scale dynamic, stochastic, general equilibrium (DSGE) model for fiscal policy simulations. Relative to existing models of this type, our model incorporates two important features. First, we consider a two-country monetary union structure, which makes it well suited to simulate fiscal measures by relatively large countries in a currency area. Second, we 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. In addition, 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: DSGE model, fiscal policy, two-country monetary union, disaggregation of fiscal expenditures, labor market frictions
    JEL: E62 H30
    Date: 2011–05
  6. By: Marcell Stippinger; B\'alint Vet\H{o}; \'Eva R\'acz; Zsolt Bihary
    Abstract: We explore the possibilities of importance sampling in the Monte Carlo pricing of a structured credit derivative referred to as Collateralized Debt Obligation (CDO). Modeling a CDO contract is challenging, since it depends on a pool of (typically about 100) assets, Monte Carlo simulations are often the only feasible approach to pricing. Variance reduction techniques are therefore of great importance. This paper presents an exact analytic solution using Laplace-transform and MC importance sampling results for an easily tractable intensity-based model of the CDO, namely the compound Poissonian. Furthermore analytic formulae are derived for the reweighting efficiency. The computational gain is appealing, nevertheless, even in this basic scheme, a phase transition can be found, rendering some parameter regimes out of reach. A model-independent transform approach is also presented for CDO pricing.
    Date: 2011–05
  7. By: Garth Heutel
    Abstract: When consumers exhibit present bias and are time-inconsistent, the standard solution to market failures caused by externalities—Pigouvian pricing—is suboptimal. I investigate policies aimed at externalities for time-inconsistent consumers. Welfare-maximizing policy in this case includes an instrument to correct the externality and an instrument to correct the present bias. Either instrument can be an incentive-based policy or a command-and-control policy. Calibrated to the US automobile market, simulation results from a model with time-inconsistent consumers suggest that the second-best gasoline tax is 18%–30% higher than marginal external damages. These simulations also suggest that social welfare is maximized with a gasoline tax set about equal to marginal external damages and a fuel economy tax that increases the price of an average non-hybrid car by about $750–$2200 relative to the price of an average hybrid car.
    JEL: Q48 Q58
    Date: 2011–05
  8. By: K. Vela Velupillai
    Abstract: In this paper I try to argue for the desirability of analog computation in economics from a variety of perspectives, using the example of the Phillips Machine. Ultimately, a case is made for the underpinning of both analog and digital computing theory in constructive mathematics. Some conceptual confusion in the meaning of analog computing and its non-reliance on the theory of numerical analysis is also discussed.
    Date: 2010
  9. By: R. S. Bartholo; C. A. Cosenza; F. A. Doria; M. Doria; A. Teixeira
    Abstract: We discuss in an informal, general audience style the da Costa-Doria conjecture about the independence of the P = NP hypothesis and try to briefly assess its impact on practical situations in economics. The paper concludes with a discussion of the Coppe-Cosenza procedure, which is an approximate, partly heuristic algorithm for allocation problems.
    Keywords: P vs. NP , allocation problem, assignment problem, traveling salesman, exact solution for NP problems, approximate solutions for NP problems, undecidability, incompleteness
    Date: 2011

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