New Economics Papers
on Computational Economics
Issue of 2012‒05‒15
sixteen papers chosen by

  1. Fund managers - Why the best might be the worst: On the evolutionary vigor of risk-seeking behavior By Witte, Björn-Christopher
  2. Optimizing whole-farm management considering price and climate risks By Lehmann, Niklaus; Finger, Robert
  3. Achieving the MDGs in Yemen. An Assessment By Abdulmajeed Al-Batuly; Mohamed Al-Hawri; Martin Cicowiez; Hans Lofgren; Mohammad Pournik
  4. Documentation of the Finance Ministry Tax-Benefit Microsimulation Model for the Polish Economy By Jakub Skibicki; Karolina Konopczak
  5. An evolutionary approach to preference disaggregation in a MURAME-based credit scoring problem By Marco Corazza; Stefania Funari; Riccardo Gusso
  6. Implications of the global economic crisis for the Bangladesh economy By Raihan, Selim
  7. Numerical Solution of Dynamic Equilibrium Models under Poisson Uncertainty By Olaf Posch; Timo Trimborn
  8. From total farm to household risk: implication for risk management By de Mey, Yann; Wauters, Erwin; van Winsen, Frankwin; Vancauteren, Mark; Van Passel, Steven; Lauwers, Ludwig H.
  9. The differentiated effects of food price spikes on poverty in Uganda By Boysen, Ole; Matthews, Alan
  10. Simulating the spillover benefits from R&D by a small producer country embedded in a co-authorship network: Aquaculture R&D in Germany By Guettler, Stefan; Seidel-Lass, Linda; Mueller, Rolf A.E.
  11. Economic Rationale for Safety Investment in Integrated Gasification Combined-Cycle Gas Turbine Membrane Reactor Modules By Koc, R.; Kazantzis, N.K.; Nuttall, W.J.; Ma, Y.H
  12. Approximating high-dimensional dynamic models: sieve value function iteration By Peter Arcidiacono; Patrick Bayer; Federico A. Bugni; Jonathan James
  13. Dynamic Loan Loss Provisioning: Simulations on Effectiveness and Guide to Implementation By Torsten Wezel; Francesco Columba; Jorge A. Chan Lau
  14. Assessing the economic costs of an outbreak of Foot and Mouth Disease on Brittany: A dynamic computable general equilibrium approach By Gohin, Alexandre; Rault, Arnaud
  15. Multi-Agent Financial Network (MAFN) Model of US Collateralized Debt Obligations (CDO): Regulatory Capital Arbitrage, Negative CDS Carry Trade and Systemic Risk Analysis By Sheri M. Markose; Bewaji Oluwasegun; Simone Giansante
  16. Multi-agent Interaction in the Problem of Managing Venture Projects By O.A. Malafeyev; O.S. Zenovich

  1. By: Witte, Björn-Christopher
    Abstract: This article explores the influence of competitive conditions on the evolutionary fitness of risk preferences, using the professional competition between fund managers as a practical example. To explore how different settings of competition parameters, the exclusion rate and the exclusion interval, affect individual investment behavior, an evolutionary model is developed. Using a simple genetic algorithm, two attributes of virtual fund managers evolve: the amount of capital they invest in risky assets and the amount of excessive risk they accept, where a positive value of the latter parameter indicates an inefficient investment portfolio. The simulation experiments illustrate that the influence of competitive conditions on investment behavior and attitudes towards risk is significant. What is alarming is that intense competitive pressure generates risk-seeking behavior and diminishes the predominance of the most skilled. Under these conditions, evolution does not necessarily select managers with efficient portfolios. These results underline the institutional need to create a competitive framework that will not allow risk-taking to constitute an evolutionary advantage per se. --
    Keywords: Risk preferences,competition,genetic programming,fund managers,portfolio theory
    JEL: C73 D81 G11 G24
    Date: 2012
  2. By: Lehmann, Niklaus; Finger, Robert
    Abstract: We investigate impacts of climate change (CC) and likely increases in price risks on income, income variability, utility and on adaptation responses in crop production in Western Switzerland. To this end, a bio-economic model is used that combines a crop growth model with an economic decision model non-parametrically using genetic algorithms. Our analysis focuses on the farm-level, which enables us to integrate a much wider set of potential adaptation responses in our analysis. The model is applied to four scenarios that represent likely changes in environmental conditions due to CC as well as increasing price risks due to market liberalization, and combinations thereof. It shows that CC has the larger influence on farm-level income and utility as well as on management decisions. In contrast, the increasing price variability has only small impacts on input use. However, both CC and increasing price volatility contribute to an increasing farm-level income risk.
    Keywords: Genetic Algorithms, Agricultural Modeling, Climate Change, Price risks, Risk and Uncertainty, Q12,
    Date: 2012–02–23
  3. By: Abdulmajeed Al-Batuly (Ministry of Planning and International Cooperation, Sana’a); Mohamed Al-Hawri (Ministry of Planning and International Cooperation, Sana’a); Martin Cicowiez (CEDLAS-UNLP, La Plata, Argentina); Hans Lofgren (Development Economics Prospects Group World Bank, Washington, D.C.); Mohammad Pournik (UNDP, Regional Center for Arab States, Cairo)
    Abstract: Once the current political crisis in Yemen has been resolved, it will be ever more urgent to speed up progress, including Millennium Development Goal (MDG) achievements. Drawing on simulations with the Maquette for MDG Simulations (MAMS), a model for strategy analysis, and a linked microsimulation model, this paper addresses Yemen’s MDG challenges. A first simulation set considers scaled-up government actions with the aim of fully achieving the 2015 international MDG targets with required additional financing from foreign or domestic sources. The main finding is sobering but not surprising: given the required expansion of MDG-related services, on-time achievement of key MDG targets does not appear to have been a realistic objective even if the government, hypothetically, would have expanded services with grant aid financing starting from 2005; macroeconomic stability, government efficiency, and the production of tradables would all have suffered due to the size of spending and aid increases as well as the resulting real exchange rate appreciation. The results suggest that countries, instead of relying on international targets, should set MDG targets grounded in their own reality. In light of these results, the authors designed a second simulation set that is focused on the remaining period up to 2015, and on what may be feasible once the current conflict has been settled. The simulations introduce moderate increases in foreign aid or government allocative efficiency. The government uses the resulting fiscal space for spending and service expansion in infrastructure and human development without losses in productive efficiency. The results suggest that, under these conditions, substantial improvements could still be achieved.
    Keywords: Millennium Development Goals, Yemen, Computable General Equilibrium, MAMS
    JEL: C68 E62 O15
    Date: 2012–04
  4. By: Jakub Skibicki (Ministry of Finance, Poland); Karolina Konopczak (Warsaw School of Economics and Ministry of Finance, Financial Policy, Analysis and Statistics Department)
    Abstract: This paper presents the tax-benefit microsimulation model for the Polish economy developed at the Polish Ministry of Finance. The tool has been designed to enable the ex ante regulatory impact assessment of fiscal and social policy. Proposed regulatory changes are evaluated along two dimensions – financial and distributional. As of yet, the model is of a static type and is able to capture only first round (on impact) effects. However, by employing the nearest neighbour algorithm, behavioural responses in terms of consumption patterns have been incorporated. The microsimulation model is also to be supplemented with a labour supply module and eventually integrated with a CGE-type model, so as to quantify the macroeconomic consequences of tax and benefit policy design. This paper describes the scheme of the model, the underlying model assumptions, goodness of fit to the data and some examples of application.
    Keywords: Microsimulation, regulatory impact assessment, tax and benefit policy
    JEL: C63 H24 H31
    Date: 2012–05–04
  5. By: Marco Corazza (Department of Economics, Università Ca' Foscari Venezia); Stefania Funari (Department of Management, Università Ca' Foscari Venezia); Riccardo Gusso (Department of Economics, Università Ca' Foscari Venezia)
    Abstract: In this paper we use an evolutionary approach in order to infer the values of the parameters (weights of criteria, preference, indifference and veto thresholds) for developing the multicriteria method MURAME. According to the logic of preference disaggregation, the problem consists in finding the parameters that minimize the inconsistency between the model obtained with those parameters and that one connected with a given reference set of decisions revealed by the decision maker; in particular, two kinds of functions are considered in this analysis, representing a measure of the model inconsistency compared to the actual preferential system. In order to find a numerical solution of the mathematical programming problem involved, we adopt an evolutionary algorithm based on the Particle Swarm Optimization (PSO) method, which is an iterative heuristics grounded on swarm intelligence. The proposed approach is finally applied to a creditworthiness evaluation problem in order to test the methodology on a real data set provided by an Italian bank.
    Keywords: Preference disaggregation; Murame; Particle swarm optimization
    JEL: C6 G2
    Date: 2012–04
  6. By: Raihan, Selim
    Abstract: There is no denying the fact that the recent global economic crisis has profound implications for the developing countries like Bangladesh. This paper has explored the impacts of global economic crisis on the economy of Bangladesh in a general equilibrium framework. The CGE model for Bangladesh economy is developed with a Social Accounting Matrix for the year 2007 as the database. Analysis of the trend and pattern of the global economic crisis suggests that global economic crisis led to some negative impacts on the Bangladesh economy through two major channels: slumps in exports and remittances growths. Three simulations have been conducted considering export and remittance shocks and their short term and long term effects are explored under different factor market closures. The results of the simulations suggest that during the global economic crisis the growth in total exports was much lower than those during pre-crisis periods and the export growth was mainly driven by the growth in non-RMG sectors. Under the export simulation, the woven and knit RMG sectors would experience contraction and there would be some expansions of the non-RMG export oriented sectors. Because of the reduced rates of growth in overall exports as well as much slower growth in knit and woven RMG sectors, there would be some negative impacts on the economy in terms of falls in consumption, exports, imports and households’ consumption and welfare. The poorer households would suffer more as a result of negative export shock during the global economic crisis. Furthermore, the reduced rate of growth in remittances during the global economic crisis would contribute to the fall in household income and real consumption. Demand for goods would decline and, as a result, domestic demand and import would decrease. Due to the fact that reduction in inflow of remittance would contribute to depreciation of the real exchange rate, there would be a positive impact on the growth of exports. All household categories would encounter fall in real consumption and welfare. The households with higher initial endowments of remittance incomes would experience larger fall in real consumption and welfare. The scenario depicting the combined effects of the export and remittance shocks suggests that the negative effects would aggravate under this scenario. In all cases, however, the short term negative effects would be larger than the long term negative effects. The upshots of the above discussion point us to the fact that the economy of Bangladesh was affected during the global economic crisis, when growth in exports and remittances slowed down by great margins and the economy suffered. Several policy implications may emerge from the aforementioned analysis of the simulation results. It is evident from the aforementioned analysis that there was a very low growth of exports of woven and knit RMG from Bangladesh during the economic crisis. This resulted in low growth in total exports. The effects on consumption and welfare of the households were negative. There is a fear of continuation of this sluggish growth in exports of woven and knit RMG in the future. Therefore, there is a need for the policy makers to take necessary steps to enhance exports from these two sectors. These export oriented sectors suffer from serious supply side bottlenecks, such as lack of backward linkages, weak physical infrastructure, lack of skilled manpower, lack of access to capital, high lead time, high cost of doing business, etc. There is a need to bring down these supply side constraints which can enhance the competitiveness of these sectors. It is also true that the export basket of Bangladesh is highly concentrated in favor of the woven and knit RMG. There is a need to diversify the export basket so that the reliance on only a few sectors is reduced and the economy becomes less vulnerable to any external shock. The simulation results in this paper have convincingly suggested the strong welfare enhancing effects of remittance in Bangladesh. The growth rate of remittance inflow reduced quite drastically during the global economic crisis. Also, looking at the trend of annual migration from Bangladesh it appears that there is a high risk of further reduction in inflow of remittances. Therefore, there is a need to take necessary measures for encouraging larger inflow of remittances and greater outward migration. Measures such as reducing the hassles of sending remittances through formal channels and providing appropriate guidance and support for channeling the remittance money to productive investment could be very useful. Also, government needs to negotiate both multilaterally (at WTO) and bilaterally for the enhancement of export of manpower from Bangladesh.
    Keywords: Global economic crisis; Bangladesh; Export growth; Remittances; CGE model
    JEL: C68 F17 F24
    Date: 2012–02
  7. By: Olaf Posch; Timo Trimborn
    Abstract: We propose a simple and powerful numerical algorithm to compute the transition process in continuous-time dynamic equilibrium models with rare events. In this paper we transform the dynamic system of stochastic differential equations into a system of functional differential equations of the retarded type. We apply the Waveform Relaxation algorithm, i.e., we provide a guess of the policy function and solve the resulting system of (deterministic) ordinary differential equations by standard techniques. For parametric restrictions, analytical solutions to the stochastic growth model and a novel solution to Lucas' endogenous growth model under Poisson uncertainty are used to compute the exact numerical error. We show how (potential) catastrophic events such as rare natural disasters substantially affect the economic decisions of households.
    Keywords: Continuous-time DSGE, Poisson uncertainty, Waveform Relaxation
    JEL: C63 E21 O41
    Date: 2011–09
  8. By: de Mey, Yann; Wauters, Erwin; van Winsen, Frankwin; Vancauteren, Mark; Van Passel, Steven; Lauwers, Ludwig H.
    Abstract: Modeling the farm level impact of risk management programs, policies and instruments is traditionally been done on a farm-level basis. Hence, farm simulation models typically use the behavioural assumption of profit or utility maximization is risk aversion taken into account. However, abundant – albeit indirect – evidence from different literature sources suggest that minimization of household risk – being the chance of falling below a certain threshold level of household cash flow – might be more realistic behavioural assumption. In this paper, we present concepts of operational, financial, total farm and household risk. Further, using a stochastic simulation model on two typical Belgian dairy farms, we illustrate possible farmers responses in the presence or absence of farm income stabilization mechanisms. Although some limitations to the current model are mentioned, the results already suggests the usefulness of considering household risk when assessing the impact of risk management programs, policies and instruments.
    Keywords: Household risk, typical dairy farms, stochastic simulation, household buffering capacity, Risk and Uncertainty,
    Date: 2012–02–23
  9. By: Boysen, Ole; Matthews, Alan
    Abstract: This paper applies an integrated CGE-microsimulation model to analyse the impact of the 2006-08 increase in commodity prices on Uganda. Previous impact analysis studies suggested that the food price shock increased poverty in Uganda as there are more net food buyer than net food seller households. We show that the agriculture commodity price shocks were poverty-reducing, but the simultaneous increases in energy and fertiliser prices were poverty-increasing. Overall, poverty decreased in Uganda as a result of external price shocks in the 2006-08 period.
    Keywords: Food price shock, Uganda, microsimulation, poverty, International Development, Risk and Uncertainty, O55, Q18.,
    Date: 2012–02–23
  10. By: Guettler, Stefan; Seidel-Lass, Linda; Mueller, Rolf A.E.
    Keywords: Aquaculture R&D, Bibliometric Network Analysis, DREAM simulation, Agricultural and Food Policy, Research and Development/Tech Change/Emerging Technologies,
    Date: 2012
  11. By: Koc, R.; Kazantzis, N.K.; Nuttall, W.J.; Ma, Y.H
    Abstract: A detailed Net Present Value (NPV) model has been developed to evaluate the economic viability of an Integrated Gasification Combined Cycle – Membrane Reactor (IGCC-MR) power plant intended to provide an electricity generating and pure H2 (hydrogen) producing technology option with significantly lower air pollutants and CO2 (carbon dioxide) emission levels, where the membrane reactor module design conforms also to basic inherent safety principles. Sources of irreducible uncertainty (market, regulatory and technological) are explicitly recognized, such as the power plant capacity factor, Pd (palladium) price, membrane life-time and CO2 prices (taxes) due to future regulatory action/policies. The effect of the above uncertainty drivers on the project’s/plant’s value is elucidated using a Monte-Carlo simulation technique that enables the propagation of the above uncertain inputs through the NPV-model, and therefore, generate a more realistic distribution of the plant’s value rather than a single-point/estimate that overlooks these uncertainties. The simulation results derived suggest that in the presence of (operational, economic and regulatory) uncertainties, inherently safe membrane reactor technology options integrated into IGCC plants could become economically viable even in the absence of any valuation being placed on human life or quality of life by considering only equipment damage and interruption of business/lost production cost. Comparatively more attractive NPV distribution profiles are obtained when concrete safety risk-reducing measures are taken into account through pre-investment in process safety (equipment) in a pro-active manner, giving further credence to the thesis that process safety investments may result in enhanced economic performance in the presence of irreducible uncertainties.
    Keywords: Membrane reactors; IGCC; Hydrogen production; Process intensification; Process safety; Process economic analysis; Net Present Value; Uncertainty; Monte Carlo simulation.
    JEL: G11 G31 G32
    Date: 2012–05–09
  12. By: Peter Arcidiacono; Patrick Bayer; Federico A. Bugni; Jonathan James
    Abstract: Many dynamic problems in economics are characterized by large state spaces, which make both computing and estimating the model infeasible. We introduce a method for approximating the value function of high-dimensional dynamic models based on sieves and establish results for the: (a) consistency, (b) rates of> convergence, and (c) bounds on the error of approximation. We embed this method for approximating the solution to the dynamic problem within an estimation routine and prove that it provides consistent estimates of the model’s parameters. We provide Monte Carlo evidence that our method can successfully be used to approximate models that would otherwise be infeasible to compute, suggesting that these techniques may substantially broaden the class of models that can be solved and estimated.> Keywords:
    Keywords: Estimation theory ; Quantitative policy modeling ; Simulation modeling
    Date: 2012
  13. By: Torsten Wezel; Francesco Columba; Jorge A. Chan Lau
    Abstract: This simulation-based paper investigates the impact of different methods of dynamic provisioning on bank soundness and shows that this increasingly popular macroprudential tool can smooth provisioning costs over the credit cycle and lower banks’ probability of default. In addition, the paper offers an in-depth guide to implementation that addresses pertinent issues related to data requirements, calibration and safeguards as well as accounting, disclosure and tax treatment. It also discusses the interaction of dynamic provisioning with other macroprudential instruments such as countercyclical capital.
    Keywords: Bank soundness , Banks , Business cycles , Capital , Credit risk , Loans ,
    Date: 2012–05–02
  14. By: Gohin, Alexandre; Rault, Arnaud
    Abstract: Epizootic outbreaks such as Foot and Mouth Disease are of great concern for agriculture. In this paper, we quantify the potential dynamic impacts of such a disease on Brittany, a French region with a strong livestock sector. We develop a dynamic computable general equilibrium model with rational expectations that allows us to measure the impacts of culling infected animals and restraining movements of live animals on the livestock sectors and downstream food industries. Our results show that economic losses are spread over many periods even with a one-time shock. The impacts on the primary sectors and downstream food sectors do not move in parallel. The food industries suffer most in the first period while the negative impacts on agriculture are mostly observed thereafter. Credit and wage constraints result in an estimated aggregated loss multiplied by more than 700 per cent. These results challenge the concept of a simple management policy for this disease.
    Keywords: dynamics, CGE, animal disease, catastrophic event, Risk and Uncertainty, Q11, Q18,
    Date: 2012–02–23
  15. By: Sheri M. Markose; Bewaji Oluwasegun; Simone Giansante
    Abstract: A database driven multi-agent model has been developed with automated access to US bank level FDIC Call Reports which yield data on balance sheet and off balance sheet activity, respectively, in Residential Mortgage Backed Securities (RMBS) and Credit Default Swaps (CDS). The simultaneous accumulation of RMBS assets on US banks’ balance sheets and also large counterparty exposures from CDS positions characterized the $2 trillion Collateralized Debt Obligation (CDO) market. The latter imploded by end of 2007 with large scale systemic risk consequences. Based on US FDIC bank data, that could have been available to the regulator at the time, we investigate how a CDS negative carry trade combined with incentives provided by Basel II and its precursor in the US, the Joint Agencies Rule 66 Federal Regulation No. 56914 which became effective on January 1, 2002, on synthetic securitization and credit risk transfer (CRT), led to the unsustainable trends and systemic risk. The resultant market structure with heavy concentration in CDS activity involving 5 US banks can be shown to present too interconnected to fail systemic risk outcomes. The simulation package can generate the financial network of obligations of the US banks in the CDS market. We aim to show how such a multi-agent financial network (MAFN) model is well suited to monitor bank activity and to stress test policy for perverse incentives on an ongoing basis.
    Date: 2012–03–01
  16. By: O.A. Malafeyev; O.S. Zenovich
    Date: 2011–09

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