nep-cmp New Economics Papers
on Computational Economics
Issue of 2013‒05‒05
nine papers chosen by
Stan Miles
Thompson Rivers University

  1. An Iterated Local Search Algorithm for the Construction of Large Scale D-Optimal Experimental Designs By Palhazi Cuervo D.; Goos P.; Sörensen K.
  2. Blind Man's Buff: On the Search of the Optimal Capital Structure By Ignacio Velez-Pareja, Felipe Mejia-Pelaez, James W. Kolari; Felipe Mejia-Pelaez; James W. Kolari
  3. A robust tree method for pricing American options with CIR stochastic interest rate By Elisa Appolloni; Lucia Caramellino; Antonino Zanette
  4. Climate Change and Adaptation: The Case of Nigerian Agriculture By Francesco Bosello; Lorenza Campagnolo; Fabio Eboli
  5. The EU decarbonisation roadmap 2050: What way to walk? By Hübler, Michael; Löschel, Andreas
  6. Macroeconomic Impacts of the EU 30% GHG Mitigation Target By Francesco Bosello; Lorenza Campagnolo; Carlo Carraro; Fabio Eboli; Ramiro Parrado; Elisa Portale
  7. Balancing the European Monetary Union - an Impact Analysis on the Return of National Currencies By Anke Mönnig
  8. A Monte Carlo procedure for checking identification in DSGE models By Le, Vo Phuong Mai; Minford, Patrick; Wickens, Michael
  9. The Relation between Inventory Investment and Price Dynamics in a Distributive Firm By Tonogi, Akiyuki

  1. By: Palhazi Cuervo D.; Goos P.; Sörensen K.
    Abstract: We focus on the D-optimal design of screening experiments involving main-eects regression models, especially with large numbers of factors and observations. We propose a new selection strategy for the coordinate-exchange algorithm based on an orthogonality measure of the design. Computational experiments show that this strategy nds better designs within an execution time that is 30% shorter than other strategies. We also provide strong evidence that the use of the prediction variance as a selection strategy does not provide any added value in comparison to simpler selection strategies. Additionally, we propose a new iterated local search algorithm for the construction of D-optimal experimental designs. This new algorithm clearly outperforms the original coordinate-exchange algorithm.
    Date: 2013–04
  2. By: Ignacio Velez-Pareja, Felipe Mejia-Pelaez, James W. Kolari; Felipe Mejia-Pelaez; James W. Kolari
    Abstract: In these slides we discuss the practical and conceptual difficulty of finding an Optimal Capital Structure. We propose a normative approach we call Implicit Bankruptcy Costs Theory and how to proceed to find the optimal capital structure and value with period-to-period constant and variable leverage, when the discount rate for tax shields is Ke, the cost of levered equity. Numerical procedures and a recursive closed-form non-circular expressions for the finite-period and perpetuity cases are presented, which facilitate any kind of implementation including Monte Carlo simulations.
    Date: 2012–08–29
  3. By: Elisa Appolloni; Lucia Caramellino; Antonino Zanette
    Abstract: We propose a robust and stable lattice method which permits to obtain very accurate American option prices in presence of CIR stochastic interest rate without any numerical restriction on its parameters. Numerical results show the reliability and the accuracy of the proposed method.
    Date: 2013–05
  4. By: Francesco Bosello (Centro Euro-Mediterraneo sui Cambiamenti Climatici, Fondazione Eni Enrico Mattei and University of Milan, Italy); Lorenza Campagnolo (Centro Euro-Mediterraneo sui Cambiamenti Climatici, Fondazione Eni Enrico Mattei and University of Venice, Italy); Fabio Eboli (Centro Euro-Mediterraneo sui Cambiamenti Climatici, Fondazione Eni Enrico Mattei and University of Venice, Italy)
    Abstract: The present research offers an economic assessment of climate change impacts on the four major crop families characterizing Nigerian agriculture, covering more than 80% of agricultural value added. The evaluation is performed shocking land productivity in a computable general equilibrium model tailored to replicate Nigerian economic development until the mid of this century. The detail of land uses in the model has been also increased differentiating land types per agro ecological zones. Uncertainty on future climate is captured, using, as input, yield changes computed by a crop model, covering the whole range of variability produced by an envelope of one RCM and tem GCM runs. Climate change turns to be unambiguously negative for Nigeria in the medium term with production losses, increase in crop prices, higher food dependency on foreign imports and GDP losses in all the simulations after 2025. In a second part of the paper a cost effectiveness analysis of adaptation in Nigeria agriculture is conducted. Adaptation practices considered are a mix of cheaper “soft measures” and more costly “hard” irrigation expansion. The main result is that cost effectiveness of the whole package crucially depends on the possibility to implement adaptation exploiting low cost opportunities. In this case all climate change damages can be offset with a benefit cost ration larger than one in all the climate regimes. Expensive irrigation expansion should however be applied on a much more limited acreage compared with soft measures. If adaptation costs are those of the high end estimates, full adaptation ceases to be cost/effective.This points out the need of a careful planning and implementation of adaptation, irrespectively on the type, looking for measures apt to control its unit cost.
    Keywords: Climate Change, Impact, Adaptation, Agriculture, CGE Modelling
    JEL: C68 Q51 Q54 Q15
    Date: 2013–04
  5. By: Hübler, Michael; Löschel, Andreas
    Abstract: We carry out a detailed CGE (Computable General Equilibrium) analysis of the EU Decarbonisation Roadmap 2050 on a macroeconomic and on a sectoral level. Herein, we study a Reference scenario that implements existing EU policies as well as 3 unilateral and 3 global climate action scenarios. We identify global climate action with international emissions trading and the ful l equalization of CO2 prices across all (EU) sectors as a reasonable policy option to avoid additional costs of the Decarbonisation Roadmap to a large extent. This policy option may include CDM (Clean Development Mechanism in the sense of 'where'-flexibility) in an extended form if there are countries without emissions caps. Moreover, we identify diverse sectoral effects in terms of output, investment, emissions and international competitiveness. We conclude that the successful realization of the EU Decarbonisation Roadmap probably requires a wise and joint consideration of technology, policy design and sectoral aspects. --
    Keywords: EU,Decarbonisation Roadmap,Copenhagen Pledges,post Kyoto,energy-intensive sectors,competitiveness,leakage
    JEL: C68 F18 Q43 Q54
    Date: 2013
  6. By: Francesco Bosello (University of Milan, Euro-Mediterranean Center on Climate Change, Fondazione Eni Enrico Mattei, Italy); Lorenza Campagnolo (Euro-Mediterranean Center on Climate Change, Fondazione Eni Enrico Mattei, Ca’ Foscari University of Venice, Italy); Carlo Carraro (Euro-Mediterranean Center on Climate Change, Fondazione Eni Enrico Mattei, Ca’ Foscari University of Venice, Italy); Fabio Eboli (Euro-Mediterranean Center on Climate Change, Fondazione Eni Enrico Mattei, Italy); Ramiro Parrado (Euro-Mediterranean Center on Climate Change, Fondazione Eni Enrico Mattei, Italy); Elisa Portale (Euro-Mediterranean Center on Climate Change, Fondazione Eni Enrico Mattei, Italy)
    Abstract: The reduction of GHG emissions is one of the most important policy objectives worldwide. Nonetheless, concrete and effective measures to reduce them are hardly implemented. One of the main reasons for this deadlock is the fear that unilateral actions will reduce a country’s competitiveness, and will benefit those countries where no GHG mitigation measures are implemented. This kind of argument is also often used to explain why some governments and many business leaders are not in favour of the EU 30% GHG mitigation target that has been proposed to replace the previous 20% GHG emission reduction objective approved by the EU within the well-known 20-20-20 climate and energy package. By developing and applying a recursive, dynamic, very detailed CGE model with energy generation from both fossil fuel and renewable sources, we address this issue by estimating the cost for different EU countries and industries of the EU climate and energy package under a set of alternative international scenarios on global GHG mitigation efforts. Results show that, thanks to the EU economic recession, achieving a 20% GHG emission reduction entails a moderate cost for the European Union - about 0.5% of EU GDP – even in the case of EU unilateral action. This cost could be reduced to almost zero if not only the European Union, but also the other major world economies, comply with the “low pledge” Copenhagen Accord. A 30% GHG emission reduction target would certainly be more costly: the total loss in the European Union would be 1.26% of EU GDP in the case of EU unilateral action, whereas the total cost would be 0.55% of EU GDP if all major economies reduce their own GHG emissions according to the “low pledge” Copenhagen Accord. Both border tax adjustments and free allocation of carbon permits are shown to be successful in reducing some adverse competitiveness effects of the EU GHG mitigation policy into energy intensive sectors, but at the expenses of the other economic sectors.
    Keywords: EU Climate Package, UNFCCC Conference of Parties, Kyoto Protocol, Computable General Equilibrium Analysis
    JEL: C68 Q43 Q48 Q54
    Date: 2013–03
  7. By: Anke Mönnig (GWS - Institute of Economic Structures Research)
    Abstract: The current state budget crisis in the EU and the numerous futile efforts to solve the problem has brought back the fraction of people that argument in favour of an exit strategy of Germany from the European monetary union (EMU) or even the break-up of the EMU in total. This paper investigates for the case of Germany, whether or not a return to a new deutsche mark would be beneficial. It applies the macro-econometric input-output model INFORGE for this analysis, as it is able to quantify direct and indirect effects on inter-industrial level as well as on the demand and supply sides of the economy. Above that, INFORGE considers sectoral effects which are extremely important for the evaluation of this impact analysis. The quantitative results of the computed projection shows, that a return to a national currency would lower Germany's growth path mainly due to the expected appreciation of the new currency. A second scenario, which assumes a worsening of the crisis within the remaining EMU would intensify the negative implications for Germany. Although the results should be considered with respect to their strong assumptions, consensuses among economists exist that these assumptions might be initiated in case of an EMU break-up. Hence, in the case of Germany, the effort of doing everything to foster the future existing of the monetary union is of utmost importance.
    Keywords: European Monetary Union, projection, impact analysis
    JEL: E2 E5 F4
    Date: 2012
  8. By: Le, Vo Phuong Mai (Cardiff Business School); Minford, Patrick (Cardiff Business School); Wickens, Michael (Cardiff Business School)
    Abstract: We propose a numerical method, based on indirect inference, for checking the identification of a DSGE model. Monte Carlo samples are generated from the model's true structural parameters and a VAR approximation to the reduced form estimated for each sample. We then search for a different set of structural parameters that could potentially also generate these VAR parameters. If we can find such a set, the model is not identified.
    Keywords: Identification; DSGE model; Monte Carlo; Indirect Inference
    JEL: C13 C51 C52 E32
    Date: 2013–03
  9. By: Tonogi, Akiyuki
    Abstract: In this paper, we examine the role of inventory in the price-setting behavior of a distributive firm. Empirically, we show that probability of price change has a positive relation to the scale of the retailer’s storage and the frequency of its bargain sales. We also show a negative relation between the frequency of bargain sales and the price elasticity of demand. These results denote that price stickiness varies by the retailers’ characteristics. In this paper, we consider that the hidden mechanism of price stickiness comes from the retailer’s policy for inventory investment. We develop a partial equilibrium model of the retailer’s optimization behavior with inventory and financial restrictions. The results of the numerical experiments suggest that price change frequency depends on the retailer’s order cost, storage cost, and menu cost.
    Keywords: Inventory, Price Stickiness, Numerical Experiment, (S, s) Policy
    JEL: D22 E27 E31
    Date: 2013–04

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