nep-cmp New Economics Papers
on Computational Economics
Issue of 2012‒04‒10
six papers chosen by
Stan Miles
Thompson Rivers University

  1. Macroeconomic Policy in DSGE and Agent-Based Models By Giorgio Fagiolo; Andrea Roventini
  2. Fast computation of vanilla prices in time-changed models and implied volatilities using rational approximations By Martijn Pistorius; Johannes Stolte
  3. Reducing illegal immigration to South Africa: A dynamic CGE analysis By Heinrich R. Bohlmann
  4. Securities Transaction Taxes: Macroeconomic Implications in a General-Equilibrium Model By Rafal Raciborski; Julia Lendvai; Lukas Vogel
  5. Structural Reforms and the Potential Effects on the Italian Economy By Barbara Annicchiarico; Fabio Di Dio; Francesco Felici
  6. The accessibility arc upgrading problem By Maya Duque, P.A.; Coene S.; Goos P.; Sörensen K.; Spieksma F.

  1. By: Giorgio Fagiolo; Andrea Roventini
    Abstract: The Great Recession seems to be a natural experiment for macroeconomics showing the inadequacy of the predominant theoretical framework - the New Neoclassical Synthesis - grounded on the DSGE model. In this paper, we present a critical discussion of the theoretical, empirical and political-economy pitfalls of the DSGE-based approach to policy analysis. We suggest that a more fruitful research avenue to pursue is to explore alternative theoretical paradigms, which can escape the strong theoretical requirements of neoclassical models (e.g., equilibrium, rationality, representative agent, etc.). We briefly introduce one of the most successful alternative research projects - known in the literature as agent-based computational economics (ACE) - and we present the way it has been applied to policy analysis issues. We then provide a survey of agent-based models addressing macroeconomic policy issues. Finally, we conclude by discussing the methodological status of ACE, as well as the (many) problems it raises.
    Keywords: Economic Policy, Monetary and Fiscal Policies, New Neoclassical Synthesis, New Keynesian Models, DSGE Models, Agent-Based Computational Economics, Agent-Based Models, Great Recession, Crisis
    JEL: B41 B50 E32 E52
    Date: 2012
  2. By: Martijn Pistorius; Johannes Stolte
    Abstract: We present a new numerical method to price vanilla options quickly in time-changed Brownian motion models. The method is based on rational function approximations of the Black-Scholes formula. Detailed numerical results are given for a number of widely used models. In particular, we use the variance-gamma model, the CGMY model and the Heston model without correlation to illustrate our results. Comparison to the standard fast Fourier transform method with respect to accuracy and speed appears to favour the newly developed method in the cases considered. We present error estimates for the option prices. Additionally, we use this method to derive a procedure to compute, for a given set of arbitrage-free European call option prices, the corresponding Black-Scholes implied volatility surface. To achieve this, rational function approximations of the inverse of the Black-Scholes formula are used. We are thus able to work out implied volatilities more efficiently than one can by the use of other common methods. Error estimates are presented for a wide range of parameters.
    Date: 2012–03
  3. By: Heinrich R. Bohlmann
    Abstract: South African authorities are attempting to limit inflows of illegal immigrants. Evidence for the United States presented in Dixon et al (2011) suggests that a policy-induced reduction in labour supply from illegal immigrants generates a welfare loss for legal residents. I use a similar labour market mechanism within a dynamic CGE model for South Africa, but take into consideration a number of well-known facts about the local economy. With high unemployment rates among low skilled workers and a legal minimum wage in place, I find a net gain in employment and welfare for legal residents in South Africa when reducing the inflow of illegal immigrants.
    Keywords: Illegal immigration, dynamic CGE modelling
    JEL: J61 C68
    Date: 2012
  4. By: Rafal Raciborski; Julia Lendvai; Lukas Vogel
    Abstract: The paper studies the impact of a securities transaction tax (STT) on financial trading, stock prices and real economic variables in a closed-economy dynamic stochastic general-equilibrium model featuring financial frictions. The model incorporates channels by which 'noise trading' affects real economic volatility. Firms' investment expenditure is related to the value of their outstanding shares. The model is calibrated to stylised facts of financial trading and firms' financing. The simulations suggest distortive effects of the STT on real variables similar to those of corporate income taxation. At the same time, the STT reduces economic volatility, but this stabilisation gain is quantitatively modest.
    JEL: E22 E44 E62
    Date: 2012–03
  5. By: Barbara Annicchiarico (Faculty of Economics, University of Rome "Tor Vergata"); Fabio Di Dio (Consip S.p.A., Macroeconomic Modelling Unit); Francesco Felici (Italian Ministry of Economy and Finance,)
    Abstract: Since the second half of 2011, after a period of prolonged low growth, Italy has found itself at the center of a severe economic crisis. Concerns about the sustainability of its debt burden, along with gloomy growth prospects, have pushed up the cost of government borrowing, exacerbating current economic conditions. At the moment Italy is facing two mounting economic challenges: (i) achieve a rapid fiscal consolidation to restore financial market confidence; (ii) implement structural reforms to strengthen medium-term growth prospects. Using the European Commission's model QUEST III with R&D, adapted to Italy, we quantify the potential effects of a set of interventions inspired to the reform packages currently being undertaken or under discussion and consider different levels of policy effort. Results show that reforms are likely to bring about sizable gains in output, consumption, employment and net foreign assets position and that most of these gains derive from labor market reforms. However, the fiscal austerity plan is likely to severely mitigate the positive effects of the interventions, especially during the earlier phases of the reform process. Most of these losses accrue to liquidity-constraint households who would experience a drop in consumption.
    Keywords: Structural Reforms, Fiscal Consolidation, Simulation Analysis, Italy
    JEL: E10 E60 E47
    Date: 2012–03–29
  6. By: Maya Duque, P.A.; Coene S.; Goos P.; Sörensen K.; Spieksma F.
    Abstract: The accessibility arc upgrading problem (AAUP) is a network upgrading problem that arises in real-life decision processes such as rural network planning. In this paper, we propose a linear integer programming formulation and two solution approaches for this problem. The rst approach is based on the knapsack problem and uses the knowledge gathered from an analytical study of some special cases of the AAUP. The second approach is a variable neighbourhood search with strategic oscillation. The excellent performance of both approaches is validated using a large set of random generated instances. Finally, we stress the importance of a proper allocation of scarce resources in accessibility improvement.
    Date: 2012–03

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