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on Computational Economics |
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Issue of 2013‒11‒02
eight papers chosen by |
| By: | Hull, Isaiah (Monetary Policy Department, Central Bank of Sweden) |
| Abstract: | I introduce and evaluate a new stochastic simulation method for dynamic economic models. It is based on recent work in the operations research and engineering literatures (Van Roy et. al, 1997; Powell, 2007; Bertsekas, 2011). The baseline method involves rewriting the household's dynamic program in terms of post-decision states. This makes it possible to choose controls optimally without computing an expectation. I add a subroutine to the original algorithm that updates the values of states not visited frequently on the simulation path; and adopt a stochastic stepsize that efficiently weights information. Finally, I modify the algorithm to exploit GPU computing. |
| Keywords: | Numerical Solutions; Approximations; Heterogeneous Agents; Nonlinear Numerical Solutions; Dynamic Programming |
| JEL: | C60 C61 C63 D52 |
| Date: | 2013–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0276&r=cmp |
| By: | Roger Farmer; Vadim Khramov |
| Abstract: | We propose a method for solving and estimating linear rational expectations models that exhibit indeterminacy and we provide step-by-step guidelines for implementing this method in the Matlab-based packages Dynare and Gensys. Our method redefines a subset of expectational errors as new fundamentals. This redefinition allows us to treat indeterminate models as determinate and to apply standard solution algorithms. We provide a selection method, based on Bayesian model comparison, to decide which errors to pick as fundamental and we present simulation results to show how our procedure works in practice. |
| Keywords: | Economic models;Monetary policy;Indeterminacy, DSGE Models, Expectational Errors. |
| Date: | 2013–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/200&r=cmp |
| By: | Takeshima, Hiroyuki; Nin-Pratt, Alejandro; Diao, Xinshen |
| Keywords: | mechanization, households, productivity, Typology, Cluster analysis, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:1291&r=cmp |
| By: | Riccetti, Luca; Russo, Alberto; Mauro, Gallegati |
| Abstract: | Starting from the agent-based decentralized matching macroeconomic model proposed in Riccetti et al. (2012), we explore the effects of banking regulation on macroeconomic dynamics. In particular, we study the overall credit exposure and the lending concentration towards a single counterparty, finding that the portfolio composition seems to be more relevant than the overall exposure for banking stability, even if both features are very important. We show that a too tight regulation is dangerous because it reduces credit availability. Instead, on one hand, too loose constraints could help banks to make money and to increase their net worth, thus making the constraints not binding. However, on the other hand, if bank profits are tied to higher payout ratio (as it really happened along the deregulation phase of the last 20 years), then the financial fragility increases causing a weaker economic environment (e.g., higher mean unemployment rate), a more volatile business cycle, and a higher probability of triggering financial crises. Accordingly, simulation results support the introduction of the Capital Conservation Buffer (Basel 3 reform). |
| Keywords: | financial regulation, agent-based macroeconomics, business cycle, crisis, unemployment, leverage |
| JEL: | C63 E32 G18 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:51013&r=cmp |
| By: | Lancelot F. James; Dohyun Kim; Zhiyuan Zhang |
| Abstract: | Exact path simulation of the underlying state variable is of great practical importance in simulating prices of financial derivatives or their sensitivities when there are no analytical solutions for their pricing formulas. However, in general, the complex dependence structure inherent in most nontrivial stochastic volatility (SV) models makes exact simulation difficult. In this paper, we present a nontrivial SV model that parallels the notable Heston SV model in the sense of admitting exact path simulation as studied by Broadie and Kaya. The instantaneous volatility process of the proposed model is driven by a Gamma process. Extensions to the model including superposition of independent instantaneous volatility processes are studied. Numerical results show that the proposed model outperforms the Heston model and two other L\'evy driven SV models in terms of model fit to the real option data. The ability to exactly simulate some of the path-dependent derivative prices is emphasized. Moreover, this is the first instance where an infinite-activity volatility process can be applied exactly in such pricing contexts. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1310.6526&r=cmp |
| By: | Walter Briec (LAMPS, Université de Perpignan); Kristiaan Kerstens (CNRS-LEM and IESEG School of Management); Ignace Van de Woestyne (Hogeschool Universiteit Brussel) |
| Abstract: | This note shows how the linear programs needed to compute cost and revenue functions under constant returns to scale and a single output or input, respectively, can be replaced with a more efficient enumeration algorithm. A numerical example illustrates this algorithm |
| Keywords: | nonparametric cost and revenue functions, enumeration, linear programming |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:ies:wpaper:e201322&r=cmp |
| By: | Mathieu Moslonka-Lefebvre; Herv\'e Monod; Christopher A. Gilligan; Elisabeta Vergu; Jo\~ao A. N. Filipe |
| Abstract: | Market trade-routes can support infectious-disease transmission, impacting biological populations and even disrupting causal trade. Epidemiological models increasingly account for reductions in infectious contact, such as risk-aversion behaviour in response to pathogen outbreaks. However, market dynamics clearly differ from simple risk-aversion, as are driven by different motivation and conditioned by trade constraints, known in economics as friction, that arise because exchanges are costly. Here we develop a novel economic-market model where transient and long-term market dynamics are determined by trade friction and agent adaptation, and can influence disease transmission. We specify the participants, frequency, volume, and price in trade transactions, and investigate, using analytical insights and simulation, how trade friction affects joint market and epidemiological dynamics. The friction values explored encompass estimates from French cattle and pig markets. We show that, when trade is the dominant route of transmission, market friction can be a significantly stronger determinant of epidemics than risk-aversion behaviour. In particular, there is a critical friction level above which epidemics do not occur. For a given level of friction, open unregulated markets can boost epidemics compared with closed or tightly regulated markets. Our results are robust to model specificities and can hold in the presence of non-trade disease-transmission routes. In particular, we try to explain why outbreaks in French livestock markets appear more frequently in cattle than swine despite swine trade-flow being larger. To minimize contagion in markets, safety policies could generate incentives for larger-volume, less-frequent transactions, increasing trade friction without necessarily affecting overall trade flow. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1310.6320&r=cmp |
| By: | Riccetti, Luca; Russo, Alberto; Gallegati, Mauro |
| Abstract: | In the present paper we analyse the role of dividends distributed by firms and banks, highlighting the effects of their increase on financial instability and macroeconomic dynamics. During the last decades, the financialisation of nonfinancial corporations has been characterised by a shift from a "retain and reinvest" strategy to a "downsize and distribute" strategy. We will investigate such a phenomenon by varying some of the model parameters, so simulating firms’ and banks’ behaviours under alternative settings. On the one hand, more distributed dividends increases agents’ wealth and thus consumption may rise due to a wealth-effect. On the other hand, increasing dividends reduce firms’ net worth that may result in a strong dependence of firms’ production on bank credit; at the same time, if also banks distribute more dividends, then banks’ capital decreases and this may result in credit rationing. As we will see, financialisation through increasing dividends impacts financial (in)stability and income distribution, with relevant consequences on macroeconomic dynamics. |
| Keywords: | agent-based macroeconomics, business cycle, leverage, payout policy, financialisation, crisis |
| JEL: | C63 E32 G35 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:51074&r=cmp |