nep-cmp New Economics Papers
on Computational Economics
Issue of 2014‒03‒08
six papers chosen by
Stan Miles
Thompson Rivers University

  1. Fiscal and monetary policies in complex evolving economies By Mauro Napoletano; Andrea Roventini; Giovanni Dosi; Giorgio Fagiolo; Tania Treibich
  2. Rock around the clock :An agent-based model of low-and high frequency trading By Sandrine Jacob Leal; Mauro Napoletano; Andrea Roventini; Giorgo Fagiolo
  3. Crowdfunding, Cascades and Informed Investors By Parker, Simon C.
  4. Multivariate Versus Univariate Kriging Metamodels for Multi-Response Simulation Models (Revision of 2012-039) By Kleijnen, Jack P.C.; Mehdad, E.
  5. Diffusion of climate technologies in the presence of commitment problems By Taran Fæhn; Elisabeth Thuestad Isaksen
  6. Assessing the Experience of South Asia–East Asia Integration and India’s Role By Wignaraja, Ganeshan

  1. By: Mauro Napoletano (OFCE); Andrea Roventini (Department of economics); Giovanni Dosi (Laboratory of Economics and Management); Giorgio Fagiolo (Laboratory of Economics and Management (LEM)); Tania Treibich
    Abstract: In this paper we explore the effects of alternative combinations of fiscal and monetary policies under different income distribution regimes. In particular, we aim at evaluating fiscal rules in economies subject to banking crises and deep recessions. We do so using an agent-based model populated by heterogeneous capital- and consumption-good forms, heterogeneous banks, workers/consumers, a Central Bank and a Government. We show that the model is able to reproduce a wide array of macro and micro empirical regularities, including stylised facts concerning financial dynamics and banking crises. Simulation results suggest that the most appropriate policy mix to stabilise the economy requires unconstrained counter-cyclical fiscal policies, where automatic stabilisers are free to dampen business cycles fluctuations, and a monetary policy targeting also employment. Instead, discipline-guided" fiscal rules such as the Stability and Growth Pact or the Fiscal Compact in the Eurozone always depress the economy, without improving public finances, even when escape clauses in case of recessions are considered. Consequently, austerity policies appear to be in general self-defeating. Furthermore, we show that the negative effects of austere fiscal rules are magnified by conservative monetary policies focused on ination stabilisation only. Finally, the effects of monetary and fiscal policies become sharper as the level of income inequality increases.
    Keywords: Agent based model; fiscal policy; monetary policy; banking crises; income inequality; austerity policies; disequilibrium dynamics
    JEL: C63 E32 E6 E52 G21 O4
    Date: 2014–02
  2. By: Sandrine Jacob Leal (Cerefige, ICN, Business School,Gredec); Mauro Napoletano (Ofce,Skema Business school,Scuola superiore Sant'Anna); Andrea Roventini (Universita di Verona, Scuola superiore Sant'Anna); Giorgo Fagiolo (Scuola Superiore Sant'Anna Pisa, Italy)
    Abstract: We build an agent-based model to study how the interplay between low- and high- frequency trading affects asset price dynamics. Our main goal is to investigate whether high-frequency trading exacerbates market volatility and generates ash crashes. In the model, low-frequency agents adopt trading rules based on chrono- logical time and can switch between fundamentalist and chartist strategies. On the contrary, high-frequency traders activation is event-driven and depends on price fluctuations. High-frequency traders use directional strategies to exploit market in- formation produced by low-frequency traders. Monte-Carlo simulations reveal that the model replicates the main stylized facts of financial markets. Furthermore,we find that the presence of high-frequency trading increases market volatility and plays a fundamental role in the generation of ash crashes.The emergence of ash crashes is explained by two salient characteristics of high-frequency traders, i.e. their ability to i) generate high bid-ask spreads and ii) synchronize on the sell side of the limit order book. Finally, we find that higher rates of order cancellation by high-frequency traders increase the incidence of ash crashes but reduce their duration.
    Keywords: Agent based models, Limit order book, High frequency trading,low frequency trading, flash crashes, market volatility
    JEL: G12 G01 C63
    Date: 2014–02
  3. By: Parker, Simon C. (Western University, Canada)
    Abstract: Do higher proportions of (a) informed investors and (b) high-quality projects increase the number of good projects that are ultimately financed via crowdfunding? A simple model and simulation reveals the answers to both questions to be: 'not necessarily'.
    Keywords: crowdfunding, new ventures, entrepreneurial finance, startups
    JEL: L26 C63 G23
    Date: 2014–02
  4. By: Kleijnen, Jack P.C.; Mehdad, E. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: To analyze the input/output behavior of simulation models with multiple responses, we may apply either univariate or multivariate Kriging (Gaussian process) metamodels. In multivariate Kriging we face a major problem: the covariance matrix of all responses should remain positive-de nite; we therefore use the recently proposed "non-separable dependence" model. To evaluate the performance of univariate and multivariate Kriging, we perform several Monte Carlo experiments that simulate Gaussian processes. These Monte Carlo results suggest that the simpler univariate Kriging gives smaller mean square error.
    Keywords: Simulation;Stochastic processes;Multivariate statistics
    JEL: C0 C1 C9 C15 C44
    Date: 2014
  5. By: Taran Fæhn; Elisabeth Thuestad Isaksen (Statistics Norway)
    Abstract: Publicly announced GHG mitigation targets and emissions pricing strategies by individual governments may suffer from inherent commitment problems. When emission prices are perceived as short-lived, socially cost-effective upfront investment in climate technologies may be hampered. This paper compares the social abatement cost of a uniform GHG pricing system with two policy options for overcoming such regulatory uncertainty: one with a state guarantee scheme whereby the regulatory risk is borne by the government and one which combines emissions pricing with subsidies for upfront climate technology investments. A technology-rich CGE model is applied that accounts for abatement both within and beyond existing technologies. Our findings suggest a tripling of abatement costs if domestic climate policies fail to stimulate investment in new technological solutions. Since the cost of funding investment subsidies is found to be small, the subsidy scheme performs almost as well as the guarantee scheme.
    Keywords: Abatement costs; Climate technologies; Credible commitment; Computable general equilibrium model; Technological change; Technological diffusion; Hybrid modelling
    Date: 2014–01
  6. By: Wignaraja, Ganeshan (Asian Development Bank Institute)
    Abstract: This paper examines the gains for South Asian economies from integrating with East Asia and India’s role in this process. Evidence of increased pan-Asian integration exists but the process is uneven. Bilateral trade has grown. As have bilateral foreign direct investment flows and free trade agreements (FTAs), albeit at a slower pace than trade. The integration process has been led by India and Pakistan with limited participation of smaller South Asian economies. Tackling key impediments in cross-border infrastructure, FTAs, trade barriers and business regulations, and barriers to services will foster further integration. Computable general equilibrium (CGE) simulations suggest that a South Asia–East Asia FTA offers the most gains for South Asia and that India has an incentive to include its neighbors in such an arrangement rather than going it alone with East Asia. The rest of South Asia will gain by deepening South Asian integration and fostering ties with East Asia.
    Keywords: pan-asian economic integration; south asia-east asia trade; infrastructure; reforms; free trade agreements
    JEL: F15 F17 O14 O24 O53
    Date: 2014–02–25

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