nep-cmp New Economics Papers
on Computational Economics
Issue of 2012‒05‒29
ten papers chosen by
Stan Miles
Thompson Rivers University

  1. Jamel, a Java Agent-based MacroEconomic Laboratory By Pascal Seppecher
  2. Modeling the Welfare Implications of Agricultural Policies in Developing Countries By Jonasson, Erik; Filipski, Mateusz; Brooks, Jonathan; Taylor, J. Edward
  3. China and the TPP: A Numerical Simulation Assessment of the Effects Involved By Chunding Li; John Whalley
  4. Correlated Trades and Herd Behavior in the Stock Market By Simon Jurkatis; Stephanie Kremer; Dieter Nautz
  5. Problems in taxation: An optimization approach for loss offset options By Schanz, Sebastian; Schmidt, Günter; Dinh, Hai-Dung; Kersch, Mike
  6. Italian real estate investment funds: market structure and risk measurement By Michele Leonardo Bianchi; Agostino Chiabrera
  7. Markets as communication systems. Simulating and assessing the performance of market networks By Galtier, F.; Bousquet, F.; Antona, M.; Bommel, P.
  8. Optimal High Frequency Trading in a Pro-Rata Microstructure with Predictive Information By Fabien Guilbaud; Huyên Pham
  9. Sale of Visas: A Smuggler's Final Song? By Auriol, Emmanuelle; Mesnard, Alice
  10. Saving on a Rainy Day, Borrowing for a Rainy Day By Sule Alan; Thomas Crossley; Hamish Low

  1. By: Pascal Seppecher (CEMAFI - Centre d'Etudes en Macroéconomie et Finance Internationale - Université de Nice Sophia Antipolis (UNS), GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR7321 - Université de Nice Sophia Antipolis (UNS))
    Abstract: This paper presents a computational macroeconomic model which closely associates Keynesian thinking and an agent-based approach. This model is original because we do not introduce any causality between macroeconomic variables. Instead of postulate macroeconomic properties, we want to understand them by the methodic reconstruction of the conditions of their emergence, starting from their most elementary foundations: the interactions between individual agents. This model is the model of a dynamic out-of-equilibrium economy composed of two principal sets of agents (firms and households) associated with two main functions (production and consumption). The agents are not representative agents or aggregates but autonomous individuals in direct and indirect interactions, each of them pursuing its own purposes, acting according to their individual state and their local environment, without worrying about the general equilibrium of the system and without any overriding control.
    Keywords: Agent-based computational economics ; Heterogeneous agents ; Endogenous money ; Monetary macroeconomics ; Bounded rationality
    Date: 2012–05–14
  2. By: Jonasson, Erik (Department of Economics, Lund University); Filipski, Mateusz (University of California, Davis); Brooks, Jonathan (OECD); Taylor, J. Edward (University of California, Davis)
    Abstract: This paper presents a new model which incorporates features of developing country agriculture that may be critical in shaping the welfare outcomes of alternative agricultural policies. The model features heterogeneous households linked through markets in a rural economy-wide structure, with endogenous market participation for farmers facing transactions costs. The model is used for policy simulations, including market price support, production subsidies, input subsidies, transaction cost removal, and unconditional cash transfers. Applications for six countries highlight the diversity of potential impacts of such policies. The simulation results suggest that there are circumstances under which some market interventions, such as input subsidies, may be only slightly less efficient at transferring incomes than direct payments.
    Keywords: agricultural household model; agricultural policy; simulation; transaction costs
    JEL: O12 O13 Q12 Q18
    Date: 2012–05–15
  3. By: Chunding Li; John Whalley
    Abstract: The Trans-Pacific Partnership (TPP) is a new negotiation on cross border liberalization of goods and service flows going beyond WTO disciplines and focused on issues such as regulation and border controls. Though the US, Australia and other pacific countries are included, China is notable for its exclusion from the process thus far. This paper uses numerical simulation methods to assess the potential effects of a TPP agreement on China and the other participating countries. We use a numerical five-country global general equilibrium model with trade costs and monetary structure incorporating inside money to allow for impacts on trade imbalances. Trade costs are calculated using a method based on gravity equations. Simulation results reveal that China will be hurt by TPP initiatives, but the negative effects are relatively small given the geographical and commodity composition of China’s trade. Other non-TPP countries will be hurt but member countries will all gain. Japan’s joining TPP would be beneficial to both herself and all other TPP countries, but negative effects on China and other non-TPP countries will increase further. If China takes part in TPP, it will increase China’s and other TPP countries’ gain, but non-TPP countries will be hurt more. As a regional free trade arrangement, TPP effects are different from global free trade effects which will benefit all countries (not just member countries) in the world, and the positive effects of global free trade are stronger than TPP effects.
    JEL: C68 F47 F53
    Date: 2012–05
  4. By: Simon Jurkatis; Stephanie Kremer; Dieter Nautz
    Abstract: Herd behavior is often viewed as a signicant threat for the stability and eciency of nancial markets. This paper sheds new light on the relevance of herd behavior for observed correlation of trades. We introduce numerical simulations of a herd model to derive theory-guided predictions regarding the impact of various aspects of uncertainty on herding intensity. We test the predictions using a novel data set including all real-time transactions of institutional investors in the German stock market. In light of the model simulations, empirical results strongly suggest that the observed correlation of trades is mainly due to the common reaction of investors to new public information and should not be misinterpreted as herd behavior.
    Keywords: Herd Behavior, Institutional Trading, Correlated Trading, Model Simulation
    JEL: G11 G24 C23
    Date: 2012–05
  5. By: Schanz, Sebastian; Schmidt, Günter; Dinh, Hai-Dung; Kersch, Mike
    Abstract: We solve an optimization problem which arises in the German tax system. Here losses in some period can be tranferred to other periods reducing tax in these periods. Two variants of taxation can be applied. We formulate the problem as a mixed binary mathematical program and solve it via branch and bound using binary search. Special cases of the problem can be solved by fast polynomial algorithms. --
    Date: 2012
  6. By: Michele Leonardo Bianchi (Banca d'Italia); Agostino Chiabrera (Banca d'Italia)
    Abstract: This paper describes the Italian real estate investment funds industry, providing an overview of the distinctive features and risk factors of this sector. By using accounting and supervisory data, we: (1) compute the returns of the real estate assets in the portfolio of these funds; (2) construct a price index and a total return index of the real estate assets held by the Italian funds; (3) define a risk assessment process based on three different aspects - their financial profile, income structure and property price behaviour. This analysis allows us to select funds with a weak financial structure, poor returns, and a high probability that in a three-year interval their property portfolio will fall below their net liabilities (defined as the difference between debt and liquid assets). The proposed risk assessment can be seen as the first step towards a more intensive supervisory analysis and can also be useful for investment purposes.
    Keywords: real estate investment funds, asset management, firm value model, non-normal distributions, Monte Carlo simulation
    JEL: G21
    Date: 2012–04
  7. By: Galtier, F.; Bousquet, F.; Antona, M.; Bommel, P.
    Abstract: As the information relative to endowments, costs and preferences is dispersed among many agents, the quality of resource allocation depends on the ability of markets to communicate information inside the economic system. Because information is transferred through negotiation and transaction behaviors, the network of trading relations defines the channels through which it flows. In the present study, we use new computational tools to analyze the performance of two wholesale trade institutions widely used around the world: network trading and marketplace trading. Whilst network trading and marketplace trading disseminate far fewer bits of information than a perfectly transparent benchmark market, they often manage to generate an allocation of resources that is almost as good. In many cases, network trading proves more effective than marketplace trading (contrary to a common preconception). This surprising performance of network trading is linked to a form of indirect arbitrage induced by connections between networks. Implications for market design and public policy making are presented, along with prospects for further research. ...French Abstract : Comme l’information relative aux dotations, aux coûts et aux préférences est dispersée entre de nombreux agents, la qualité de l’allocation des ressources dépend de la capacité des marchés à diffuser de l’information au sein du système économique. Comme cette information est diffusée par les comportements de négociation et d’échange, le réseau des transactions commerciales définit les canaux par lesquels elle circule. Dans la présente étude, nous utilisons des nouveaux outils de simulation informatique pour analyser la performance de deux institutions largement utilisées dans le monde pour le commerce de gros : le commerce en réseau et le commerce sur des places de marché. Bien que ces deux institutions diffusent une quantité d’information beaucoup plus faible qu’un marché parfaitement transparent (institution témoin), elles parviennent à générer une allocation des ressources qui est presque aussi bonne. Dans de nombreux cas, le commerce en réseau s’avère plus efficace que le commerce sur des places de marché (contrairement à une idée très répandue). Cette performance étonnante du commerce en réseau est liée à une forme d’arbitrage indirect induite par les connexions entre réseaux. Ces résultats ont différentes implications pour la conception d’institutions de marché et pour les politiques publiques. Ils ouvrent aussi de nouvelles pistes de recherche.
    JEL: C63 D82 D83 D85 L1 Q13
    Date: 2012
  8. By: Fabien Guilbaud (LPMA - Laboratoire de Probabilités et Modèles Aléatoires - CNRS : UMR7599 - Université Paris VI - Pierre et Marie Curie - Université Paris VII - Paris Diderot); Huyên Pham (LPMA - Laboratoire de Probabilités et Modèles Aléatoires - CNRS : UMR7599 - Université Paris VI - Pierre et Marie Curie - Université Paris VII - Paris Diderot, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique)
    Abstract: We propose a framework to study optimal trading policies in a one-tick pro-rata limit order book, as typically arises in short-term interest rate futures contracts. The high-frequency trader has the choice to trade via market orders or limit orders, which are represented respectively by impulse controls and regular controls. We model and discuss the consequences of the two main features of this particular microstructure: first, the limit orders sent by the high frequency trader are only partially executed, and therefore she has no control on the executed quantity. For this purpose, cumulative executed volumes are modelled by compound Poisson processes. Second, the high frequency trader faces the overtrading risk, which is the risk of brutal variations in her inventory. The consequences of this risk are investigated in the context of optimal liquidation. The optimal trading problem is studied by stochastic control and dynamic progra\-mming methods, which lead to a characterization of the value function in terms of an integro quasi-variational inequality. We then provide the associated numerical resolution procedure, and convergence of this computational scheme is proved. Next, we examine several situations where we can on one hand simplify the numerical procedure by reducing the number of state variables, and on the other hand focus on specific cases of practical interest. We examine both a market making problem and a best execution problem in the case where the mid-price process is a martingale. We also detail a high frequency trading strategy in the case where a (predictive) directional information on the mid-price is available. Each of the resulting strategies are illustrated by numerical tests.
    Keywords: Market making; limit order book; pro-rata microstructure; inventory risk; marked point process; stochastic control
    Date: 2012–05–14
  9. By: Auriol, Emmanuelle; Mesnard, Alice
    Abstract: We study how smugglers respond to different types of migration policies - legalisation through the sale of migration visas, or more traditional repressive policies through borders' enforcement, employers' sanctions or deportation - by changing the price they propose to illegal migrants. In this context a government that aims at eradicating smugglers and controlling migration flows faces a trade-off. Eliminating smugglers by the sale of visas increases the flows of migrants and may worsen their skill composition. In contrast, repressive policies decrease the flows of illegal migrants and may improve their skill composition but do not eliminate smugglers. We then study how a combination of increased repression -through reinforced external and internal controls- and sale of visas may be effective at eliminating smugglers and controlling migration flows while not weighing on public finances. Simulations allow us to quantify the partial equilibrium effects of the policies under study.
    Keywords: legalisation; market structure; migration; migration policies
    JEL: F22 I18 L51 O15
    Date: 2012–05
  10. By: Sule Alan (University of Cambridge and Koc University); Thomas Crossley (University of Cambridge and Koc University); Hamish Low (University of Cambridge and Institute for Fiscal Studies)
    Abstract: The aim of this paper is to understand what a recession means for individual consumers, and to model in a life-cycle framework how individuals respond to recessions. Our focus is on the sharp increase in savings rates that have been observed in the current and recent recessions. We show empirically that these saving spikes were short-lived and common to all working age groups. We then study life-cycle models in which recessions involve one or more of: (i) an aggregate permanent negative shock to individual income; (ii) an increase in the variance of idiosyncratic permanent shocks; (iii) a tightening of credit constraints; (iv) asset market crashes. In simulations and in the data we aggregate explicitly from individual behavior. We model credit tightening as a constraint on new borrowing and this generates an option value of borrowing in good times. We show that the rise in the aggregate savings ratio is driven by increases in uncertainty, rather than tighening of credit; temporary shocks to the supply of credit generate increases in saving only among younger agents.
    Keywords: credit constraints, savings, recessions, uncertainty.
    JEL: D91 E21 D14 G01
    Date: 2012–05

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