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on Computational Economics |
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Issue of 2013‒10‒05
nine papers chosen by |
| By: | Lilia Maliar (Universidad de Alicante); Serguei Maliar (Universidad de Alicante) |
| Abstract: | We introduce an envelope condition method (ECM) for solving dynamic programming problems. The ECM method is simple to implement, dominates conventional value function iteration and is comparable in accuracy and cost to Carroll’s (2005) endogenous grid method. Codes are available. |
| Keywords: | Numerical dynamic programming; Value function iteration; Endogenous grid; Envelope condition; Curse of dimensionality; Large scale |
| JEL: | C6 C61 C63 C68 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2013-07&r=cmp |
| By: | Peter C. B. Phillips (Yale University); Shu-Ping Shi (The Australian National University); Jun Yu (Sim Kee Boon Institute for Financial Economics, Singapore Management University) |
| Abstract: | This paper provides the limit theory of real time dating algorithms for bubble detection that were suggested in Phillips, Wu and Yu (2011, PWY) and Phillips, Shi and Yu (2013b, PSY). Bubbles are modeled using mildly explosive bubble episodes that are embedded within longer periods where the data evolves as a stochastic trend, thereby capturing normal market behavior as well as exuberance and collapse. Both the PWY and PSY estimates rely on recursive right tailed unit root tests (each with a di§erent recursive algorithm) that may be used in real time to locate the origination and collapse dates of bubbles. Under certain explicit conditions, the moving window detector of PSY is shown to be a consistent dating algorithm even in the presence of multiple bubbles. The other algorithms are consistent detectors for bubbles early in the sample and, under stronger conditions, for subsequent bubbles in some cases. These asymptotic results and accompanying simulations guide the practical implementation of the procedures. They indicate that the PSY moving window detector is more reliable than the PWY strategy, sequential application of the PWY procedure and the CUSUM procedure. |
| Keywords: | Bubble duration, Consistency, Dating algorithm, Limit theory, Multiple bubbles, Real time detector. |
| JEL: | C15 C22 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:skb:wpaper:cofie-04-2013&r=cmp |
| By: | Kenneth Judd (Hoover Institution); Lilia Maliar (Universidad de Alicante); Rafael Valero (Dpto. Fundamentos del Análisis Económico); Serguei Maliar (Universidad de Alicante) |
| Abstract: | First, we propose a more efficient implementation of the Smolyak method for interpolation, namely, we show how to avoid costly evaluations of repeated basis functions in the conventional Smolyak formula. Second, we extend the Smolyak method to include anisotropic constructions; this allows us to target higher quality of approximation in some dimensions than in others. Third, we show how to effectively adapt the Smolyak hypercube to a solution domain of a given economic model. Finally, we advocate the use of low-cost fixed-point iteration, instead of conventional time iteration. In the context of one- and multi-agent growth models, we find that the proposed techniques lead to substantial increases in accuracy and speed of a Smolyak-based projection method for solving dynamic economic models. |
| Keywords: | Smolyak method; sparse grid; adaptive domain; projection; anisotropic grid; collocation; high-dimensional problem |
| JEL: | C63 C68 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2013-06&r=cmp |
| By: | Mário Amorim Lopes (FEP); Fernando A. C. C. Fontes (FEUP); Dalila A. C. C. Fontes (FEP) |
| Abstract: | We propose a framework to solve dynamic nonlinear infinite-horizon models like those found in the standard economic growth literature. We employ a direct method to solve the underlying optimal control problem, something novel in the economic literature. Instead of deriving the necessary optimality conditions and solving the originated ordinary differential equations, this method first discretizes and then optimizes, in effect transforming the prob- lem into a nonlinear programming problem to be optimized at each sampling instant. We incorporate the work of Fontes (2001) in order to transform the infinite-horizon problem into an equivalent finite-horizon representation of the model. This framework presents several advantages in comparison to the available alternatives that use indirect methods. First, no linearization is required, which sometimes can be erroneous. The problem can be studied in its nonlinear form. Secondly, it enables the simulation of a shock when the economy is not at its steady state, a broad assumption required by all available numerical methods. Thirdly, it allows for the easy study of anticipated shocks. It also allows for the analysis of multiple, sequential shocks. Finally, it is extremely robust and easy to use. We illustrate the application of the framework by solving the standard Ramsey-Cass-Koopsman exogenous growth model and the Uzawa-Lucas endogenous two-sector growth model. |
| Keywords: | optimal control, direct methods, transitional dynamics, economic growth, non-steady state shocks, sequential shocks. |
| JEL: | C61 C63 O40 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:506&r=cmp |
| By: | Christoffer Kok; Mattia Montagna |
| Abstract: | In this paper, we develop an agent-based multi-layered interbank network model based on a sample of large EU banks. The model allows for taking a more holistic approach to interbank contagion than is standard in the literature. A key finding of the paper is that there are non-negligible non-linearities in the propagation of shocks to individual banks when taking into account that banks are related to each other in various market segments. In a nutshell, the contagion effects when considering the shock propagation simultaneously across multiple layers of interbank networks can be substantially larger than the sum of the contagion-induced losses when considering the network layers individually. In addition, a bank “systemic importance” measure based on the multi-layered network model is developed and is shown to outperform standard network centrality indicators |
| Keywords: | Financial Contagion, interbank market, Network theory |
| JEL: | C45 C63 D85 G21 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1873&r=cmp |
| By: | Jan A. Lipski; Ryszard Kutner |
| Abstract: | The three-state agent-based 2D model of financial markets as proposed by Giulia Iori has been extended by introducing increasing trust in the correctly predicting agents, a more realistic consultation procedure as well as a formal validation mechanism. This paper shows that such a model correctly reproduces the three fundamental stylised facts: fat-tail log returns, power-law volatility autocorrelation decay in time and volatility clustering. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1310.0762&r=cmp |
| By: | Jan Hagemejer (National Bank of Poland; Faculty of Economic Sciences, University of Warsaw); Krzysztof Makarski (National Bank of Poland; Warsaw School of Economics); Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland) |
| Abstract: | In many countries the fiscal tension associated with the global financial crisis brings about the discussion about unprivatizing the social security system. This paper employs an OLG model to assess ex ante the effects of such changes to the pension reform in Poland from 1999 as implemented in 2011 and proposed in 2013. We simulate the behavior of the economy without the implemented/proposed changes and compare it to a status quo defined by the reform from 1999. We find that the changes implemented in 2011 and all of the proposed reform scenarios from 2013 are detrimental to welfare. The effects on capital and output are small and depend on the selected fiscal closure. Implied effective replacement rates are lower. These findings are robust to time inconsistency. The shortsightedness of the governments imposes welfare costs. |
| Keywords: | OLG, PAYG, pension system reform, time inconsistency |
| JEL: | C68 E17 E25 J11 J24 H55 D72 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2013-26&r=cmp |
| By: | BIA Michela; VAN KERM Philippe |
| Abstract: | This note describes a Stata implementation of a space-filling location selection algorithm. It optimally selects a subset from an array of locations so that the spatial coverage of the array by the selected subset is optimized according to a geometric criterion. Such an algorithm is useful in site selection problems, but also in various non-parametric estimation procedures, e.g. to select (multivariate) knot locations in spline regression analysis. |
| Keywords: | spatial sampling; space-filling design; site selection; multivariate knot selection; point-swapping |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:irs:cepswp:2013-17&r=cmp |
| By: | Sophie Hélaine (European Commission – DG AGRI); Robert M’barek (European Commission – JRC-IPTS); Stephan Hubertus Gay (European Commission – DG AGRI) |
| Abstract: | The report aims to analyse different scenarios that could occur in the EU in the years to come. First is an assumed situation in which by 2020 biofuels would contribute 8% towards the RE transport target; other RE in transport such as renewable electricity would have to fill the remaining gap. Secondly the EC's ILUC proposal is analysed. Finally a complete removal of the biofuel policy in the EU is simulated. All scenarios are compared to a situation without any change in policy. The simulations are run with the AGLINK-COSIMO model, described in Chapter 2. The consequences of these scenarios on the EU biofuel market are analysed in Chapter 3, the impacts on feedstock prices and balances in the EU are presented in Chapter 4, and on world prices in Chapter 5. Chapter 6 presents the main changes in land use worldwide. |
| Keywords: | Economic analysis, biofuels, baseline, impact assessment, agricultural trade, agricultural markets, competitiveness, modelling tools, land use |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc83936&r=cmp |