|
on Computational Economics |
|
Issue of 2012‒11‒11
ten papers chosen by |
| By: | Kenneth L. Judd; Lilia Maliar; Serguei Maliar |
| Abstract: | We introduce an algorithm for solving dynamic economic models that merges stochastic simulation and projection approaches: we use simulation to approximate the ergodic measure of the solution, we construct a fixed grid covering the support of the constructed ergodic measure, and we use projection techniques to accurately solve the model on that grid. The grid construction is the key novel piece of our analysis: we select an ε-distinguishable subset of simulated points that covers the support of the ergodic measure roughly uniformly. The proposed algorithm is tractable in problems with high dimensionality (hundreds of state variables) on a desktop computer. As an illustration, we solve one- and multicountry neoclassical growth models and a large-scale new Keynesian model with a zero lower bound on nominal interest rates. |
| JEL: | C61 C63 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18501&r=cmp |
| By: | Grass, D.; Chahim, M. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: In this paper we describe three different algorithms, from which two (as far as we know) are new in the literature. We take both the size of the jump as the jump times as decision variables. The first (new) algorithm considers an Impulse Control problem as a (multipoint) Boundary Value Problem and uses a continuation technique to solve it. The second (new) approach is the continuation algorithm that requires the canonical system to be solved explicitly. This reduces the infinite dimensional problem to a finite dimensional system of, in general, nonlinear equations, without discretizing the problem. Finally, we present a gradient algorithm, where we reformulate the problem as a finite dimensional problem, which can be solved using some standard optimization techniques. As an application we solve a forest management problem and a dike heightening problem. We numerically compare the efficiency of our methods to other approaches, such as dynamic programming, backward algorithm and value function approach. |
| Keywords: | Impulse ControlMaximum Principle;Optimal Control;BVP;gradient method;continuation. |
| JEL: | C61 D90 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2012081&r=cmp |
| By: | René Aïd (FiME Lab - Laboratoire de Finance des Marchés d'Energie - Université Paris IX - Paris Dauphine - CREST - EDF R&D, EDF R&D - EDF); Luciano Campi (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, LAGA - Laboratoire Analyse, Géométrie et Application - CNRS : UMR7539 - Université Paris XIII - Paris Nord - Université Paris VIII - Vincennes Saint-Denis); Nicolas Langrené (LPMA - Laboratoire de Probabilités et Modèles Aléatoires - CNRS : UMR7599 - Université Paris VI - Pierre et Marie Curie - Université Paris VII - Paris Diderot); Huyên Pham (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, LPMA - Laboratoire de Probabilités et Modèles Aléatoires - CNRS : UMR7599 - Université Paris VI - Pierre et Marie Curie - Université Paris VII - Paris Diderot) |
| Abstract: | In this paper, we present a probabilistic numerical algorithm combining dynamic programming, Monte Carlo simulations and local basis regressions to solve non-stationary optimal multiple switching problems in infinite horizon. We provide the rate of convergence of the method in terms of the time step used to discretize the problem, of the size of the local hypercubes involved in the regressions, and of the truncating time horizon. To make the method viable for problems in high dimension and long time horizon, we extend a memory reduction method to the general Euler scheme, so that, when performing the numerical resolution, the storage of the Monte Carlo simulation paths is not needed. Then, we apply this algorithm to a model of optimal investment in power plants. This model takes into account electricity demand, cointegrated fuel prices, carbon price and random outages of power plants. It computes the optimal level of investment in each generation technology, considered as a whole, w.r.t. the electricity spot price. This electricity price is itself built according to a new extended structural model. In particular, it is a function of several factors, among which the installed capacities. The evolution of the optimal generation mix is illustrated on a realistic numerical problem in dimension eight, i.e. with two different technologies and six random factors. |
| Keywords: | Optimal switching;Monte Carlo;empirical regressions;electricity market;structural model;capacity expansion |
| Date: | 2012–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00747229&r=cmp |
| By: | Hellqvist , Matti (Financial Markets and Statistics, Bank of Finland); Laine, Tatu (Financial Markets and Statistics, Bank of Finland) |
| Abstract: | This publication consists of fifteen studies on payment and settlement systems conducted using computational or simulation techniques. The studies have been presented at the simulator seminars arranged by the Bank of Finland during the years 2009–2011. The main focus of the studies is on the analysis of payment-systems data, which constitute a virtual real-time pulse of the financial system. The data are used in the studies to develop new indicators or diagnostics, to quantify systemic risks, to analyze liquidity usage, to test or develop new system structures, and to study participants’ behavior. The studies examine payment systems in several countries, concentrating mainly on largevalue payment systems |
| Keywords: | simulation; payment system; settlement system; liquidity; systemic risk; risk indicators; free riding; liquidity saving mechanism tiering; behavioral modeling; RTGS |
| JEL: | C15 C81 D53 D70 E42 E58 G01 G21 |
| Date: | 2012–07–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofism:2012_045&r=cmp |
| By: | Dieckhoener, Caroline (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Hecking, Harald (Energiewirtschaftliches Institut an der Universitaet zu Koeln) |
| Abstract: | In this paper, we develop a microeconomic approach to deduce greenhouse gas abatement cost curves of the residential heating sector. By accounting for household behavior, we find that welfare-based abatement costs are generally higher than pure technical equipment costs. Our results are based on a microsimulation of private households' investment decision for heating systems until 2030. The households' investment behavior in the simulation is derived from a discrete choice estimation which allows investigating the welfare costs of different abatement policies in terms of the compensating variation and the excess burden. We simulate greenhouse gas abatements and welfare costs of carbon taxes and subsidies on heating system investments until 2030 to deduce abatement curves. Given utility maximizing households, our results suggest a carbon tax to be the welfare efficient policy. Assuming behavioral misperceptions instead, a subsidy on investments might have lower marginal greenhouse gas abatement costs than a carbon tax. |
| Keywords: | Household behavior; discrete choice; Pigou; greenhouse gas abatement costs |
| JEL: | C35 C61 Q47 Q53 R21 |
| Date: | 2012–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:ris:ewikln:2012_016&r=cmp |
| By: | Kumagai, Satoru; Hayakawa, Kazunobu; Isono, Ikumo; Keola, Souknilanh; Tsubota, Kenmei |
| Abstract: | This paper presents a simulation of the reduction of several components in trade cost for Asia and examines its impact on the economy. Our simulation model based on the new economic geography embraces seven sectors, including manufacturing and non-manufacturing sectors, and 1,715 regions in 18 countries/economies in Asia, in addition to the two economies of the US and the European Union. The geographical course of transactions among regions is modeled as determined based on firms’ modal choice. The model also includes estimates of some border cost measures such as tariff rates, non-tariff barriers, other border clearance costs, transshipment costs and so on. Our simulation analysis for Asia includes several scenarios involving the improvement/development of routes and the reduction of the above-mentioned border cost. We have shown that the contribution of physical and non-physical infrastructure improvements conducted together is larger than the sum of the contribution by each when conducted independently. |
| Keywords: | Asia, Transportation, Distribution, Costs, International trade, Geographical simulation, New economic geography, Trade cost |
| JEL: | F15 O53 R15 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper369&r=cmp |
| By: | Chahim, M.; Brekelmans, R.C.M.; Hertog, D. den; Kort, P.M. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: This paper determines the optimal timing of dike heightenings as well as the corresponding optimal dike heightenings to protect against floods. To derive the optimal policy we design an algorithm based on the Impulse Control Maximum Principle. In this way the paper presents one of the first real life applications of the Impulse Control Maximum Principle developed by Blaquiere. We show that the proposed Impulse Control approach performs better than Dynamic Programming with respect to computational time. This is caused by the fact that Impulse Control does not need discretization in time. |
| Keywords: | Impulse Control Maximum Principle;Optimal Control;flood prevention;dikes;cost-benefit analysis. |
| JEL: | C61 D61 H54 Q54 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2012079&r=cmp |
| By: | Teguh Dartanto (Institute for Economic and Social Research, Department of Economics, Faculty of Economics, Universitas Indonesia) |
| Abstract: | An increase in world oil prices has forced the government of Indonesia to run a larger budget deficit to finance energy subsidies. Between 2000 and 2011, Indonesia burnt 61 per cent of oil and gas revenues to fuel and electricity subsidies. These subsidies worsen income distribution in Indonesia since almost 72 per cent of these subsidies are enjoyed by the 30 per cent of the richest income groups. Therefore, there are strong economic arguments to reallocate fuel subsidies to infrastructures, education and health sectors that can boast economic growth. Applying a CGE-Microsimulation, this study found that removing 25 per cent of fuel subsidies increases the incidence of poverty by 0.253 per cent. If this money were fully allocated to government spending, the poverty incidence would decrease by 0.270 per cent. Moreover, the 100 per cent removal of fuel subsidies and the reallocation of 50 per cent of them to government spending, transfers and other subsidies could decrease the incidence of poverty by 0.277 per cent. However, these reallocation policies might not be effective to compensate the adverse impacts of the 100 per cent removal of fuel subsidies if economic agents try to seek gain through mark-up pricing over the increase of production costs. |
| Keywords: | fuel subsidies, fiscal balance, poverty, Indonesia, energy policy |
| JEL: | C68 I32 Q42 Q48 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:lpe:wpecbs:201206&r=cmp |
| By: | Castro M.; Sörensen K.; Vansteenwegen P.; Goos P. |
| Abstract: | In this paper, we present a new metaheuristic solution procedure for the travelling salesperson problem with hotel selection (TSPHS). We develop a simple but powerful metaheuristic for the TSPHS. On the existing benchmark instances for which an optimal solution is known, it obtains 27 out of 28 known optimal solutions. For the other instances, it obtains several new best known solutions. This heuristic clearly outperforms the only existing heuristic in the literature. |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:ant:wpaper:2012024&r=cmp |
| By: | Olivier Armantier; Adam Copeland |
| Abstract: | To conduct academic research on the federal funds (fed funds) market, historically one of the most important financial markets in the U.S., some empirical economists have used market level measures published by the Markets Group at the Federal Reserve Bank of New York (FRBNY). To obtain more disaggregate data, some researchers have relied on a separate source of information: individual transactions inferred indirectly from an algorithm based on the work of Furfine (1999). To date, however, the accuracy of this algorithm has not been formally established. In this paper, we conduct a test aimed at assessing the ability of the algorithm to identify correctly individual overnight fed funds transactions conducted by two banks, which are among the most active in the fed funds market. The results are discouraging. We estimate the average type I and type II errors from 2007 to 2011 to be 81% and 23%, respectively. Furthermore, we argue that these errors i) apply to almost half of the algorithm's output, ii) introduce systematic biases, and iii) may not subside when the algorithm's output is aggregated. Our results therefore raise serious concerns about the appropriateness of using the algorithm's output to study the fed funds market. Because the FRBNY Markets Group relies on a different source of data than the algorithm output, our results have no bearing on their understanding of the fed funds market and their calculation of market level measures, including the effective fed funds rate. |
| Keywords: | Banks and banking, Central ; Interest rates ; Federal Open Market Committee ; Stochastic analysis ; Equilibrium (Economics) ; Monetary policy |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:575&r=cmp |