nep-cmp New Economics Papers
on Computational Economics
Issue of 2014‒04‒05
seven papers chosen by
Stan Miles
Thompson Rivers University

  1. Microscopic determinants of the weak-form efficiency of an artificial order-driven stock market By Jian Zhou; Gao-Feng Gu; Zhi-Qiang Jiang; Xiong Xiong; Wei Zhang; Wei-Xing Zhou
  2. Assessing fiscal sustainability in some selected countries By Cruz-Rodríguez, Alexis
  3. Physics and Financial Economics (1776-2014): Puzzles, Ising and Agent-Based models By D. Sornette
  4. An agent-based computational model for China's stock market and stock index futures market By Hai-Chuan Xu; Wei Zhang; Xiong Xiong; Wei-Xing Zhou
  5. Can cash transfers promote the local economy? A case study for Cambodia: By Robinson, Sherman; Levy, Stephanie
  6. Market Power, Fuel Substitution and Infrastructure: A Large-Scale Equilibrium Model of Global Energy Markets By Daniel Huppmann; Ruud Egging
  7. Tax Reduction Policies of the Productive Sector and Its Impacts on Brazilian Economy By Costa Junior, Celso José; Sampaio, Armando Vaz

  1. By: Jian Zhou (ECUST); Gao-Feng Gu (ECUST); Zhi-Qiang Jiang (ECUST); Xiong Xiong (TJU); Wei Zhang (TJU); Wei-Xing Zhou (ECUST)
    Abstract: Stock markets are efficient in the weak form in the sense that no significant autocorrelations can be identified in the returns. However, the microscopic mechanisms are unclear. We aim at understanding the impacts of order flows on the weak-form efficiency through computational experiments based on an empirical order-driven model. Three possible determinants embedded in the model are investigated, including the tail heaviness of relative prices of the placed orders characterized by the tail index $\alpha_x$, the degree of long memory in relative prices quantified by its Hurst index $H_x$, and the strength of long memory in order direction depicted by $H_x$. It is found that the degree of autocorrelations in returns (quantified by its Hurst index $H_r$) is negatively correlated with $\alpha_x$ and $H_x$ and positively correlated with $H_s$. In addition, the values of $\alpha_x$ and $H_x$ have negligible impacts on $H_r$, whereas $H_s$ exhibits a dominating impact on $H_r$. Our results suggest that stock markets are complex adaptive systems and self-organize to a critical state in which the returns are not correlated.
    Date: 2014–03
  2. By: Cruz-Rodríguez, Alexis
    Abstract: The aim of this article is to assess the sustainability of fiscal policy in 18 developing and emerging countries, using the recursive algorithm developed by Croce and Juan-Ramón (2003). In general, the results suggest that most countries were identified as presenting large unsustainable fiscal positions in the period considered, explained basically by primary fiscal deficits. Interestingly, results for Panama suggest no evidence that officially dollarized countries run more prudent fiscal policies than non-officially dollarized countries.
    Keywords: Debt, deficit, fiscal sustainability
    JEL: E62 E63 H62
    Date: 2014–03–18
  3. By: D. Sornette (ETH Zurich)
    Abstract: This short review presents a selected history of the mutual fertilization between physics and economics, from Isaac Newton and Adam Smith to the present. The fundamentally different perspectives embraced in theories developed in financial economics compared with physics are dissected with the examples of the volatility smile and of the excess volatility puzzle. The role of the Ising model of phase transitions to model social and financial systems is reviewed, with the concepts of random utilities and the logit model as the analog of the Boltzmann factor in statistic physics. Recent extensions in term of quantum decision theory are also covered. A wealth of models are discussed briefly that build on the Ising model and generalize it to account for the many stylized facts of financial markets. A summary of the relevance of the Ising model and its extensions is provided to account for financial bubbles and crashes. The review would be incomplete if it would not cover the dynamical field of agent based models (ABMs), also known as computational economic models, of which the Ising-type models are just special ABM implementations. We formulate the ``Emerging Market Intelligence hypothesis'' to reconcile the pervasive presence of ``noise traders'' with the near efficiency of financial markets. Finally, we note that evolutionary biology, more than physics, is now playing a growing role to inspire models of financial markets.
    Date: 2014–04
  4. By: Hai-Chuan Xu (TJU); Wei Zhang (TJU); Xiong Xiong (TJU); Wei-Xing Zhou (ECUST)
    Abstract: This study presents an agent-based computational cross-market model for Chinese equity market structure, which includes both stocks and CSI 300 index futures. In this model, we design several stocks and one index futures to simulate this structure. This model allows heterogeneous investors to make investment decisions with restrictions including wealth, market trading mechanism, and risk management. Investors' demands and order submissions are endogenously determined. Our model successfully reproduces several key features of the Chinese financial markets including spot-futures basis distribution, bid-ask spread distribution, volatility clustering and long memory in absolute returns. Our model can be applied in cross-market risk control, market mechanism design and arbitrage strategies analysis.
    Date: 2014–03
  5. By: Robinson, Sherman; Levy, Stephanie
    Abstract: While previous research on cash transfer programs has primarily concentrated on micro-economic effects, this paper analyzes general equilibrium effects of social transfer policies using a computable general equilibrium model applied to Cambodia. It identifies the potential impact of these transfers on the local economy, looking particularly at prices and market responses to an increase in demand through production and trade. Our findings show that, for goods and services for which domestic supply is not elastic enough to respond to a significant rise in demand, prices will increase, affecting the value of transfers on poverty reduction.
    Keywords: Agricultural policies, Agricultural development, Impact assessment, agricultural development strategies, social protection, Computable General Equilibrium (CGE) model, impact evaluation,
    Date: 2014
  6. By: Daniel Huppmann; Ruud Egging
    Abstract: Assessing and quantifying the impacts of technological, economic, and policy shifts in the global energy system requires large-scale numerical models. We propose a dynamic multi-fuel market equilibrium model that combines endogenous fuel substitution within demand sectors and in power generation, detailed infrastructure capacity constraints and investment, as well as strategic behaviour and market power aspects by suppliers in a unified framework. This model is the first of its kind in which market power is exerted across several fuels. Using a dataset based on the IEA World Energy Outlook 2013 (New Policies scenario, time horizon 2010-2050, 30 regions, 10 fuels), we illustrate the functionality of the model in two scenarios: a reduction of shale gas availability in the US relative to current projections leads to an even stronger increase of power generation from natural gas in the European Union relative to the base case; this is due to a shift in global fossil fuel trade. In the second scenario, a tightening of the EU ETS emission cap by 80% in 2050 combined with a stronger bio-fuel mandate spawns a renaissance of nuclear power after 2030 and a strong electrification of the transportation sector. We observe carbon leakage rates from the unilateral mitigation effort of 60-70 %.
    Keywords: Energy system model, infrastructure investment, strategic behaviour, mixed complementarity problem (MCP), generalized Nash equilibrium (GNE)
    JEL: Q41 C61 D43
    Date: 2014
  7. By: Costa Junior, Celso José; Sampaio, Armando Vaz
    Abstract: There is a widespread feeling in Brazilian society that tax reform has become necessary. Analysts seek to mitigate the perverse impact of taxation on economic efficiency and competitiveness of the productive sector. In view of this, the objective of this work is to contribute to the discussion about tax reduction in the productive sector through a dynamic stochastic general equilibrium (DSGE) model. To achieve this purpose, two stochastic shocks will be analyzed in the tax rates changes on labor income and capital income. The results suggest that the tax reduction in the first tax is greater than the same effect in the second. In this first shock, there were increases in output, consumption and investment and decreases in public debt and government spending. In the second shock, the poor performance was related to low growth in the capital stock. The results of the tax revenues were similar for the two tax reductions. They showed alignment with the major tax reform proposals for Brazil, a decrease in direct taxes and an increase in indirect taxes.
    Keywords: DSGE Models; Tax Reduction; Simulation
    JEL: C63 E37 E62
    Date: 2014–04

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