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on Computational Economics |
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Issue of 2011‒06‒11
ten papers chosen by |
| By: | J. D. Kandilarov; D. Sevcovic |
| Abstract: | We present a numerical approach for solving the free boundary problem for the Black-Scholes equation for pricing American style of floating strike Asian options. A fixed domain transformation of the free boundary problem into a parabolic equation defined on a fixed spatial domain is performed. As a result a nonlinear time-dependent term is involved in the resulting equation. Two new numerical algorithms are proposed. In the first algorithm a predictor-corrector scheme is used. The second one is based on the Newton method. Computational experiments, confirming the accuracy of the algorithms are presented and discussed. |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1106.0020&r=cmp |
| By: | Katerina Lisenkova (Department of Economics, University of Strathclyde) |
| Abstract: | Ukraine has a rapidly ageing and declining population. A dynamic forwardÂâ€looking Computable General Equilibrium(CGE)modelwith an explicitly modelled Pay-ÂAs-ÂYou-ÂGo pension scheme is constructed to perform simulations of different pension reform scenarios and investigate the impact of population ageing on a wide range of macroeconomic variables. It is shown that, changes in age structure will result in a significant negative impact on the economy and stability of the pension system. Analysis of the potential changes to the pension system is limited to modelling an increase of the pension age, keeping either the workers’ contribution rate or replacement rate constant. |
| Keywords: | Ukraine, CGE Modelling, Pension Reform, Ageing |
| JEL: | J26 J11 C68 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1126&r=cmp |
| By: | Patrizio Lecca (Department of Economics, Strathclyde University); Peter McGregor (Fraser of Allander Institute, Department of Economics, Strathclyde University); Kim Swales (Department of Economics, University of Strathclyde); Ya Ping Yin (Department of Statistics, Economics, Accounting and Management Systems, University of Hertfordshire) |
| Abstract: | Inverted Haavelmo Effects in a General Equilibrium Analysis of the Impact of Implementing the Scottish Variable Rate of Income Tax. |
| Abstract: | The Scottish Parliament has the authority to make a balanced-budget expansion or contraction in public expenditure, funded by corresponding local changes in the basic rate of income tax of up to 3p in the pound. This fiscal adjustment is known as the Scottish Variable Rate of income tax, though it has never, as yet, been used. In this paper we attempt to identify the impact on aggregate economic activity in Scotland of implementing these devolved fiscal powers. This is achieved through theoretical analysis and simulation using a Computable General Equilibrium (CGE) model for Scotland. This analysis generalises the conventional Keynesian model so that negative balanced-budget multipliers values are possible, reflecting a regional “inverted Haavelmo effectâ€. Key parameters determining the aggregate economic impact are the extent to which the Scottish Government create local amenities valuable to the Scottish population and the extent to which this is incorporated into local wage bargaining. |
| Keywords: | Fiscal federalism, devolution, regional wage bargaining and migration, Scotland, regional computable general equilibrium analysis. |
| JEL: | C68 D58 H71 R13 R23 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1013&r=cmp |
| By: | Carlos Gustavo Machicado; Paul Estrada; Ximena Flores |
| Abstract: | This paper develops a dynamic stochastic general equilibrium (DSGE) model to analyze the growth effects of fiscal policy in Bolivia. It is a multi-sector model with five representative sectors for the Bolivian economy: Non-tradables, importables, hydrocarbons, mining and agriculture. Public capital is included as a production factor in each of these sectors. The model is calibrated and a number of interesting scenarios are simulated by modifying each of the available fiscal policy instruments. In particular, we analyze the sustainability of Bolivian social policy based on government transfers to households along with the short- and long-run implications of fiscal policy for growth and welfare. We find that fiscal policy alone is unable to generate high rates of growth: it must be accompanied by an efficient provision of public capital and productivity boosts in the economic sectors. |
| Keywords: | Fiscal policy, Infrastructure, multi-sector growth model |
| JEL: | E62 H54 O41 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:mpiacr:2011-10&r=cmp |
| By: | Jan Hendrik Witte; Christoph Reisinger |
| Abstract: | In this paper, we present a novel penalty approach for the numerical solution of continuously controlled HJB equations and HJB obstacle problems. Our results include estimates of the penalisation error for a class of penalty terms, and we show that variations of Newton's method can be used to obtain globally convergent iterative solvers for the penalised equations. Furthermore, we discuss under what conditions local quadratic convergence of the iterative solvers can be expected. We include numerical results demonstrating the competitiveness of our methods. |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1105.5954&r=cmp |
| By: | Igor Vetlov (Bank of Lithuania); Tibor Hlédik (Czech National Bank); Magnus Jonsson (Sveriges Riksbank); Henrik Kucsera (Magyar Nemzeti Bank); Massimiliano Pisani (Banca d'Italia) |
| Abstract: | In view of the increasing use of Dynamic Stochastic General Equilibrium (DSGE) models in the macroeconomic projections and the policy process, this paper examines, both conceptually and empirically, alternative notions of potential output within DSGE models. Furthermore, it provides historical estimates of potential output/output gaps on the basis of selected DSGE models developed by the European System of Central Banks’ staff. These estimates are compared to the corresponding estimates obtained applying more traditional methods. Finally, the paper assesses the usefulness of the DSGE model-based output gaps for gauging inflationary pressures. |
| Keywords: | potential output, simulation and forecasting models, monetary policy |
| JEL: | E32 E37 E52 |
| Date: | 2011–06–03 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:9&r=cmp |
| By: | Timilsina , Govinda R.; Mevel, Simon |
| Abstract: | The question of whether biofuels help mitigate climate change has attracted much debate in the literature. Using a global computable general equilibrium model that explicitly represents land-use change impacts due to the expansion of biofuels, this study attempts to shed some light on this question. The study shows that if biofuel mandates and targets currently announced by more than 40 countries around the world are implemented by 2020 using crop feedstocks, and if both forests and pasture lands are used to meet the new land demands for biofuel expansion, this would cause a net increase of greenhouse gas emissions released to the atmosphere until 2043, since the cumulative greenhouse gas emissions released through land-use change would exceed the reduction of emissions due to replacement of gasoline and diesel until then. However, if the use of forest lands is avoided by channeling only pasture lands to meet the demand for new lands, a net increase of cumulative greenhouse gas emissions would occur but would cease by 2021, only a year after the assumed full implementation of the mandates and targets. The study also shows, contrary to common perceptions, that the rate of deforestation does not increase with the rate of biofuel expansion; instead, the marginal rate of deforestation and corresponding land-use emissions decrease even if the production of biofuels increases. |
| Keywords: | Climate Change Mitigation and Green House Gases,Climate Change Economics,Energy and Environment,Environment and Energy Efficiency,Climate Change and Environment |
| Date: | 2011–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5672&r=cmp |
| By: | Quamrul Ashraf (Williams College); Boris Gershman (Brown University); Peter Howitt (Brown University) |
| Abstract: | This paper is an exploratory analysis of the role that banks play in supporting what Jevons called the mechanism of exchange. It considers a model economy in which exchange activities are facilitated and coordinated by a self-organizing network of entrepreneurial trading firms. Collectively, these firms play the part of the Walrasian auctioneer, matching buyers with sellers and helping the economy to approximate equilibrium prices that no individual is able to calculate. Banks affect macroeconomic performance in this economy because their lending activities facilitate entry of trading firms and also influence their exit decisions. Both entry and exit have conflicting effects on performance, and we resort to computational analysis to understand how they are resolved. Our analysis sheds new light on the conflict between micro-prudential bank regulation and macroeconomic stability. Specifically, it draws an important difference between "normal" performance of the economy and "worst-case" scenarios, and shows that micro prudence conflicts with macro stability only in bad times. The analysis also shows that banks provide a "financial stabilizer" that in some respects can more than counteract the more familiar financial accelerator. |
| Keywords: | Agent-based computational model, Market organization, Bank regulation, Macroeconomic stability, Financial stabilizer |
| JEL: | C63 E00 E63 G20 G28 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wilcde:2011-06&r=cmp |
| By: | Timilsina, Govinda R.; Mevel, Simon; Shrestha, Ashish |
| Abstract: | The price of oil could play a significant role in influencing the expansion of biofuels. However, this issue has not been fully investigated yet in the literature. Using a global computable general equilibrium model, this study analyzes the impact of oil price on biofuel expansion, and subsequently, on food supply. The study shows that a 65 percent increase in oil price in 2020 from the 2009 level would increase the global biofuel penetration to 5.4 percent in 2020 from 2.4 percent in 2009. A doubling of oil price in 2020 from its baseline level, or a 230 percent increase from the 2009 level, would increase the global biofuel penetration in 2020 to 12.6 percent. The penetration of biofuels is highly sensitive to the substitution possibility between biofuels and their fossil fuel counterparts. The study also shows that aggregate agricultural output drops due to an oil price increase, but the drop is small in major biofuel producing countries as the expansion of biofuels would partially offset the negative impacts of the oil price increase on agricultural outputs. An increase in oil price would reduce global food supply through direct impacts as well as through diversion of food commodities and cropland toward the production of biofuels. |
| Keywords: | Energy Production and Transportation,Climate Change Economics,Markets and Market Access,Renewable Energy,Food&Beverage Industry |
| Date: | 2011–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5673&r=cmp |
| By: | Patrizio Lecca (Department of Economics, University of Strathclyde); Kim Swales (Department of Economics, University of Strathclyde); Karen Turner (Stirling Management School, Division of Economics, University of Stirling) |
| Abstract: | In this paper, we use CGE modelling techniques to identify the impact on energy use of an improvement in energy efficiency in the household sector. The main findings are that 1) when the price of energy is measured in natural units, the increase in efficiency yields only to a modification of tastes, changing as a result, the composition of household consumption; 2) when households internalize efficiency, the improvement in energy efficiency reduces the price of energy in efficiency units, providing a source of improved competitiveness as the nominal wage and the price level both fall; 3) the short-run rebound can be greater than the long run rebound if the household demand elasticity is the same for both time frames, however, the short run rebound is always lower than in the long-run if the demand for energy is relatively more elastic in the long-run; 4) the introduction of habit formation changes the composition of household consumption, modifying the magnitude of the household rebound only in the short-run. In this period, household and economy wide rebound are lowest for external habit formation and highest when consumers’ preferences are defined using a conventional utility function. |
| Keywords: | Energy efficiency; Rebound effects; Households energy consumption; CGE models. |
| JEL: | C68 D57 D58 Q41 Q43 Q48 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1123&r=cmp |