nep-cmp New Economics Papers
on Computational Economics
Issue of 2012‒09‒09
fourteen papers chosen by
Stan Miles
Thompson Rivers University

  1. Target Fitting and Robustness Analysis in CGE Models By Gabriel Garber; Eduardo A. Haddad
  2. Analysis of Numerical Errors By Manuel S. Santos; Adrian Peralta-Alva
  3. Spatial Perspectives of Improving Competition in Lebanon By Eduardo A. Haddad
  4. Using Monte Carlo simulation to calculate match importance: the case of English Premier League By Lahvicka, Jiri
  5. Trade and agricultural policies in Malawi: Not all policy reform is equally good for the poor By Douillet, Mathilde
  6. Progress on the Development of an Interregional Computable General Equilibrium Model for Lebanon: The Input-Output System By Eduardo A. Haddad
  7. Accrued Pension Rights in Belgium: Micro-Simulation of Reforms By alain Jousten; Sergio Perelman; Fabio Sigismondi; Ekaterina Tarantchenko
  8. Economic effects of a nuclear-phase out policy: A CGE analysis By Lucas Bretschger; Lin Zhang
  9. Algorithm for identifying systemically important banks in payment systems By Soramäki, Kimmo; Cook, Samantha
  10. Technical Note on the Construction of the Interregional Input-Output System for the Concession Areas of ANEEL By Eduardo A. Haddad; Maria Carolina C. Marques
  11. Simulating the Effects of Michigan's MEGA Tax Credit Program on Job Creation and Fiscal Benefits By Timothy J. Bartik; George A. Erickcek
  12. The StoNED age: The departure into a new era of efficiency analysis? An MC study comparing StoNED and the "oldies" (SFA and DEA) By Andor, Mark; Hesse, Frederik
  13. A DSGE model for a SOE with systematic interest and foreign exchange policy in which policymakers exploit the risk premium for stabilization purposes By Escudé, Guillermo J.
  14. Finding communities in credit networks By Bargigli, Leonardo; Gallegati, Mauro

  1. By: Gabriel Garber; Eduardo A. Haddad
    Abstract: This paper proposes a methodology to integrate econometric models with Johansen-type computable general equilibrium (CGE) models in instances when it is necessary to generate results consistent with a subset of variables that are endogenous to both models. Results for a subset of the CGE endogenous variables are generated from econometric models, and set as targets to be replicated by the CGE model. The methodology is further extended for robustness testing of the outcomes in cases which the targeted scenarios are random. The proposed methodology is illustrated by simulating the impacts of a monetary shock in Brazil.
    Keywords: Model integration, target fitting, sensitivity analysis, CGE models, monetary
    JEL: C63 C68 R13 R15
    Date: 2012–08–12
  2. By: Manuel S. Santos (Department of Economics, University of Miami); Adrian Peralta-Alva (Research Department, Federal Reserve Bank of Saint Louis)
    Abstract: This paper provides a general framework for the quantitative analysis of stochastic dynamic models. We review convergence properties of some numerical algorithms and available methods to bound approximation errors. We then address convergence and accuracy properties of the simulated moments. Our purpose is to provide an asymptotic theory for the computation, simulation-based estimation, and testing of dynamic economies. The theoretical analysis is complemented with several illustrative examples. We study both optimal and non-optimal economies. Optimal economies generate smooth laws of motion defining Markov equilibria, and can be approximated by recursive methods with contractive properties. Non-optimal economies, however, lack existence of continuous Markov equilibria, and need to be computed by other algorithms with weaker approximation properties.
    Keywords: Stochastic Dynamic Model, Markov Equilibrium, Numerical Solution, Approximation Error, Accuracy, Simulation-Based Estimation, Consistency
    JEL: C63 C60
    Date: 2012–08–19
  3. By: Eduardo A. Haddad
    Abstract: This paper introduces the ARZ model – a fully operational spatial computable general equilibrium model for Lebanon – and its use for the analysis of place-based policies in Lebanon, in an attempt to bring additional insights to some of the proposals presented in the National Physical Master Plan of the Lebanese Territory. The ARZ model uses a similar approach to Haddad and Hewings (2005) to incorporate recent theoretical developments in the new economic geography. We apply the model to look at the ex ante potential spatial implications of an increase in domestic and international integration of Lebanese regions through reductions in trade costs.
    Keywords: Spatial CGE model; trade cost; spatial interaction; Lebanon; competition policies
    JEL: R11 R13 R15
    Date: 2012–08–11
  4. By: Lahvicka, Jiri
    Abstract: This paper presents a new method of calculating match importance (a common variable in sports attendance demand studies) using Monte Carlo simulation. Using betting odds and actual results of 12 seasons of English Premier League, it is shown that the presented method is based on realistic predictions of match results and season outcomes. The Monte Carlo method provides results closest to Jennett’s approach; however, it does not require ex-post information and can be used for any type of season outcome.
    Keywords: sports attendance; match importance; seasonal uncertainty; Monte Carlo
    JEL: C53 D12 L83
    Date: 2012–09–01
  5. By: Douillet, Mathilde
    Abstract: The reduction of the existing global distortions to agricultural incentives is sometimes stated as a priority to fight poverty worldwide. But the impacts of global trade policy and domestic development policy reforms are rarely, if ever, compared. Despite technical limitations hindering rigorous comparison of the overall growth effects, also hampering cost-benefit analysis, this paper contributes at filling this gap by focusing on the comparison of the distributional poverty impacts of both types of policies. It uses the MIRAGE global computable general equilibrium –CGE- model feeding a national CGE model representing Malawi in 2007 linked to household survey to examine how different trade policy reforms by Malawi and the rest of the world would impact poverty in Malawi. The country’s recent agricultural growth history due to the Fertilizer Input Subsidy Program is replicated and compared with a more broad-based sectoral approach. The effects of accelerating growth in agriculture and downstream sectors are compared with those of integrating in the regional and multilateral markets. Non preferential trade policy reforms are found to be less favourable for poverty reduction of the poorest than regional integration or preferential integration. Faster intensification and diversification of agriculture is found to enable targeting the poorest that are less likely to be connected to international markets. Therefore, while policy reforms generating growth in general may be good for some poors, it is found that that not all policy reforms are equally good. Thus, despite the fact that trade policies could help fight poverty in Malawi, there are no substitute to development policies, and if undertaken simultaneously, their coherence should be checked thoroughly.
    Keywords: Malawi; Economic Growth; Trade policy; Agricultural Policy; Poverty; Computable General Equilibrium
    JEL: F13 O55 Q17 D58 Q18
    Date: 2012
  6. By: Eduardo A. Haddad
    Abstract: The main goal of this paper is to present the recent developments in the construction of an interregional input-output matrix for Lebanon (IIOM-LIBAN), in the context of an ongoing project that aims to develop an interregional computable general equilibrium (ICGE) model for the country – “The ARZ Project”. The understanding of the functioning of the Lebanese regional economies within an integrated system is one of the main goals of the ARZ Project. By exploring different methods of comparative structure analysis, it is hoped that this initial exercise will benefit from the complementarity among them, resulting in a better appreciation of the full dimensions of differences and similarities that exist among the governorates in Lebanon.
    Keywords: Interregional input-output model; Lebanon; spatial linkages
    JEL: C67 D57 R12 R15
    Date: 2012–08–10
  7. By: alain Jousten; Sergio Perelman; Fabio Sigismondi; Ekaterina Tarantchenko
    Abstract: We simulate different reform scenarios of the Belgian pension system using a micro-simulation approach. Using a rich administrative dataset with extensive information on individual earnings histories, we evaluate the impact of the scenarios for the individuals as well as the system as a whole. Our main metric for these analysis is the notion of accrued to date pension rights, i.e. the pensions rights that would be due if the system were shut down today and all accrued rights under current legislation were honored. Our analysis illustrates that partial reforms have limited effects, both in distributional and in fiscal terms. To achieve more substantial effects, a more comprehensive approach is needed. Regional differences within the country are mostly due to differences in regional GDP rather than the pension system itself.
    Date: 2012
  8. By: Lucas Bretschger (ETH Zurich, Switzerland); Lin Zhang (ETH Zurich, Switzerland)
    Abstract: The paper investigates the long-run consequences of a phase-out of nuclear energy for the Swiss economy. We apply the CITE model, a CGE model with fully endogenous growth, and complement it with a bottom-up model. We find that the nuclear phase-out can be achieved at relatively low costs, even when the expansion capacities of other technologies are limited. Consumer welfare decreases by 0.4% at the maximum compared to business as usual. Our results show that an economy can cope well with ambitious energy policies through sufficient innovation. Economic growth is not slowed down significantly. The phase-out policy contributes to a structural shift in favor of innovative, energy extensive sectors. It does not work against the climate policy goals but rather accelerates the transition to a less energy-dependent economy.
    Keywords: Energy and growth; nuclear phase out; CGE model; induced innovation
    JEL: Q43 C68 Q48 O41
    Date: 2012–08
  9. By: Soramäki, Kimmo; Cook, Samantha
    Abstract: The ability to accurately estimate the extent to which the failure of a bank disrupts the financial system is very valuable for regulators of the financial system. One important part of the financial system is the interbank payment system. This paper develops a robust measure, SinkRank, that accurately predicts the magnitude of disruption caused by the failure of a bank in a payment system and identifies banks most affected by the failure. SinkRank is based on absorbing Markov chains, which are well-suited to model liquidity dynamics in payment systems. Because actual bank failures are rare and the data is not generally publicly available, the authors test the metric by simulating payment networks and inducing failures in them. The authors use two metrics to evaluate the magnitude of the disruption: the duration of delays in the system (Congestion) aggregated over all banks and the average reduction in available funds of the other banks due to the failing bank (Liquidity dislocation). The authors test SinkRank on Barabasi-Albert types of scale-free networks modeled on the Fedwire system and find that the failing bank's SinkRank is highly correlated with the resulting disruption in the system overall; moreover, the SinkRank technology can identify which individual banks would be most disrupted by a given failure. --
    Keywords: Systemic risk,interbank payment system,liquidity,Markov chains,simulation
    JEL: C63 E58 G28
    Date: 2012
  10. By: Eduardo A. Haddad; Maria Carolina C. Marques
    Abstract: The objective of this technical note is to document the methodology used to generate an interregional inputoutput system (IIOS) for the Concession Areas of ANEEL. The system consists of 58 regions closely associated with the territories of the concession areas under contract with the Federal Government. It also includes up to 110 products and 15 sectors in each region, identifying the spatial and sectoral linkages in the Brazilian interregional system. This is the first study ever that attempts to model the economies of all the concession areas of electric-power distribution services in an integrated framework for Brazi
    Keywords: Interregional input-output model; energy; market areas, spatial linkages
    JEL: C67 D57 Q41 Q43 R12 R15
    Date: 2012–08–13
  11. By: Timothy J. Bartik (W.E. Upjohn Institute for Employment Research); George A. Erickcek (W.E. Upjohn Institute for Employment Research)
    Abstract: This paper simulates job and fiscal impacts of Michigan’s MEGA tax credit program for job creation. Under plausible assumptions about how such credits affect business location decisions, the net costs per job created of the MEGA program are simulated to be of modest size. The job creation impacts of MEGA are simulated to be considerably larger than devoting similar dollar resources to general business tax cuts. The simulation methodology developed here is applicable to incentives in other states.
    Keywords: State and local economic development policy, tax incentives, fiscal impact analysis, labor market benefits, regional multipliers
    JEL: R11 R23 R28 R30 R58 H70
    Date: 2012–06
  12. By: Andor, Mark; Hesse, Frederik
    Abstract: Based on the seminal paper of Farrell (1957), researchers have developed several methods for measuring efficiency. Nowadays, the most prominent representatives are nonparametric data envelopment analysis (DEA) and parametric stochastic frontier analysis (SFA), both introduced in the late 1970s. Since decades, researchers have been attempting to develop a method which combines the virtues - both nonparametric and stochastic - of these oldies. The recently introduced Stochastic non-smooth envelopment of data (StoNED) by Kuosmanen and Kortelainen (2010) is a promising method. This paper compares the StoNED method with the two oldies DEA and SFA and extends the initial Monte Carlo simulation of Kuosmanen and Kortelainen (2010) in two directions. Firstly, we consider a wider range of conditions. Secondly, we also consider the maximum likelihood estimator (ML) and the pseudolikelihood estimator (PL) for SFA and StoNED, respectively. We show that, in scenarios without noise, the rivalry is still between the oldies, while in noisy scenarios, the nonparametric StoNED PL now constitutes a promising alternative to the SFA ML. --
    Keywords: efficiency,stochastic non-smooth envelopment of data (StoNED),data envelopment analysis (DEA),stochastic frontier analysis (SFA),monte carlo simulation
    JEL: C1 C5 D2 L5 Q4
    Date: 2012
  13. By: Escudé, Guillermo J.
    Abstract: This paper builds a DSGE model for a small open economy (SOE) in which the central bank systematically intervenes both the domestic currency bond and the FX markets using two policy rules: a Taylor-type rule and a second rule in which the operational target is the rate of nominal currency depreciation. For this, the instruments used by the central bank (bonds and international reserves) must be included in the model, as well as the institutional arrangements that determine the total amount of resources the central bank can use. The corner regimes in which only one of the policy rules is used are particular cases of the model. The model is calibrated and implemented in Dynare for 1) simple policy rules, 2) optimal simple policy rules, and 3) optimal policy under commitment. Numerical losses are obtained for ad-hoc loss functions for different sets of central bank preferences (styles). The results show that the losses are systematically lower when both policy rules are used simultaneously, and much lower for the usual preferences (in which only inflation and/or output stabilization matter). It is shown that this result is basically due to the central bank's enhanced ability, when it uses the two policy rules, to influence capital flows through the effects of its actions on the endogenous risk premium in the (risk-adjusted) interest parity equation. --
    Keywords: DSGE models,small open economy,exchange rate policy,optimal policy
    JEL: D58 F41 O24
    Date: 2012
  14. By: Bargigli, Leonardo; Gallegati, Mauro
    Abstract: In this paper the authors focus on credit connections as a potential source of systemic risk. In particular, they seek to answer the following question: how do we find densely connected subsets of nodes within a credit network? The question is relevant for policy, since these subsets are likely to channel any shock affecting the network. As it turns out, a reliable answer can be obtained with the aid of complex network theory. In particular, the authors show how it is possible to take advantage of the community detection network literature. The proposed answer entails two subsequent steps. Firstly, the authors need to verify the hypothesis that the network under study truly has communities. Secondly, they need to devise a reliable algorithm to find those communities. In order to be sure that a given algorithm works, they need to test it over a sample of random benchmark networks with known communities. To overcome the limitation of existing benchmarks, the authors introduce a new model and test alternative algorithms, obtaining very good results with an adapted spectral decomposition method. To illustrate this method they provide a community description of the Japanese bank-firm credit network, getting evidence of a strengthening of communities over time and finding support for the well-known Japanese main bank system. Thus, the authors find comfort both from simulations and from real data on the possibility to apply community detection methods to credit markets. They believe that this method can fruitfully complement the study of contagious defaults, since the likelihood of intracommunity default contagion is expected to be high. --
    Keywords: Credit networks,communities,contagion,systemic risk
    JEL: C49 C63 D85 E51 G21
    Date: 2012

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