nep-cmp New Economics Papers
on Computational Economics
Issue of 2014‒04‒11
thirteen 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. Policy Simulation of Firms Cooperation in Innovation By Heshmati, Almas; Lenz-Cesar, Flávio
  3. TPP, RCEP, and Japan's Agricultural Policy Reforms By Hiro Lee; Ken Itakura
  4. Rock around the clock: an agent-based model of low- and high-frequency trading By Sandrine Jacob Leal; Mauro Napoletano; Andrea Roventini; Giorgio Fagiolo
  5. Perfect Simulation for Models of Industry Dynamics By Takashi Kamihigashi; John Stachurski
  6. Trade-in programs in the context of technological innovation with herding By Paolo Pellizzari; Elena Sartori; Marco Tolotti
  7. Fund Managers Fees: Estimation and Sensitivity Analysis Using Monte Carlo Simulation By Dorra Najar
  8. Emergence of communities on a coevolutive model of wealth interchange By A. Agreda; K. Tucci
  9. Wavelet improvement in turning point detection using a Hidden Markov Model By Li, Yushu; Reese, Simon
  10. Conceptive Artificial Intelligence: Insights from design theory By Akin Osman Kazakci
  11. Transmission and generation investment in electricity markets: The effects of market splitting and network fee regimes By Grimm, Veronika; Martin, Alexander; Weibenzahl, Martin; Zoettl, Gregor
  12. "Large-scale Penetration of Solar PV in Japan: Simulation Analysis" (in Japanese) By Keiji Saito; Shin-ichi Hanada; Hiroshi Ohashi
  13. Parallel American Monte Carlo By Calypso Herrera; Louis Paulot

  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: Heshmati, Almas (Centre of Excellence for Science and Innovation Studies (CESIS), & Department of Economics, Sogang University); Lenz-Cesar, Flávio (Ministry of Communications, Esplanada dos Ministério)
    Abstract: This study utilizes results from an agent-based simulation model to conduct public policy simulation of firms’ networking and cooperation in innovation. The simulation game investigates the differences in sector responses to internal and external changes, including cross-sector spillovers, when applying three different policy strategies to promote cooperation in innovation. The public policy strategies include clustering to develop certain industries, incentives to encourage cooperative R&D and spin-off policies to foster entrepreneurship among R&D personnel. These policies are compared with the no-policy alternative evolving from the initial state serving as a benchmark to verify the gains (or loses) in the number of firms cooperating and networking. Firms’ behavior is defined according to empirical findings from analysis of determinants of firms’ participation in cooperation in innovation with other organizations using the Korean Innovation Survey. The analysis based on manufacturing sector data shows that firms’ decision to cooperate with partners is primarily affected positively by firm’s size and the share of employees involved in R&D activities. Then, each cooperative partnership is affected by a different set of determinants. The agent-based models are found to have a great potential to be used in decision support systems for policy makers. The findings indicate possible appropriate policy strategies to be applied depending on the target industries. We have applied few examples and showed how the results may be interpreted. Guidelines are provided on how to generalize the model to include a number of extensions that can serve as an optimal direction for future research in this area.
    Keywords: agent-based simulation; collaborative R&D; innovation networks; simulation game; policy strategy;
    JEL: C15 C71 D21 D85 L20 O31
    Date: 2014–03–27
  3. By: Hiro Lee (Osaka School of International Public Policy, Osaka University); Ken Itakura (Graduate School of Economics, Nagoya City University)
    Abstract: In this paper we compare welfare effects and the extent of sectoral adjustments under the proposed Trans-Pacific Partnership (TPP) agreement and the Regional Comprehensive Economic Partnership (RCEP) accords using a dynamic computable general equilibrium (CGE) model from the perspective of Japan. The ambitious goals of both organizations, as well as overlapping membership, make comparisons of different scenarios particularly intriguing. Another objective of this paper is to examine the effects of Japan's agricultural policy reforms on its agricultural output. If agricultural reforms, such as phasing out gentan and consolidation of agricultural land, lead to an improvement in productivity of agricultural sectors, then the extent of output contraction of agricultural and processed food sectors in Japan would be reduced significantly except for dairy products. This suggests the importance of carrying out agricultural reforms in Japan for region-wide trade accords.
    Keywords: TPP, RCEP, CGE model, Japan, agricultural policy reform
    JEL: F15 F17
    Date: 2014–03
  4. By: Sandrine Jacob Leal; Mauro Napoletano (OFCE); Andrea Roventini (Department of economics); Giorgio Fagiolo (Laboratory of Economics and Management (LEM))
    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 flash crashes. In the model, low-frequency agents adopt trading rules based on chronological time and can switch between fundamentalist and chartist strategies. On the contrary, high-frequency traders activation is event-driven and depends on price the contrary, high-frequency traders activation is event-driven and depends on price formation produced by low-frequency traders. Monte-Carlo simulations reveal that the model replicates the main stylized facts of financial markets. Furthermore, we found that the presence of high-frequency trading increases market volatility and plays a fundamental role in the generation of flash crashes. The emergence of flash 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 found that higher rates of order cancellation by high-frequency traders increase the incidence of flash crashes but reduce their duration.
    Keywords: Agent-based models; Limit order book; High-frequency trading; low-frequency trading; Flash crashes; Market volatility
    JEL: G12 C63
    Date: 2014–02
  5. By: Takashi Kamihigashi (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); John Stachurski (Research School of Economics, Australian National University, Australia)
    Abstract: In this paper we introduce a technique for perfect simulation from the stationary distribution of a standard model of industry dynamics. The method can be adapted to other, possibly non-monotone, regenerative processes found in industrial organization and other fields of economics. The algorithm we propose is a version of coupling from the past. It is straightforward to implement and exploits the regenerative property of the process in order to achieve rapid coupling.
    Keywords: Regeneration, Simulation, Coupling from the past, Perfect sampling
    Date: 2014–03
  6. By: Paolo Pellizzari (Dept. of Economics, Università Ca' Foscari Venice); Elena Sartori (Dept. of economics, Università Ca' Foscari Venice); Marco Tolotti (Dept. of Management, Università Ca' Foscari Venice)
    Abstract: We study optimal pricing strategies and consequent market sharesÕ dynamics in a transition from an old and established technology to a new one. We simulate an agentbased model, in which a large population of possible buyers decide whether to adopt or not depending on prices, private signals and herding behavior. The firm, on its part, sets prices to maximize revenues. We show that trade-in programs, in practice comparable to very aggressive discounts, are supported by a rational attitude.
    Keywords: agent-based models, mobile phone market, random utilities, technology competition, threshold models
    JEL: C63 C73 O33
    Date: 2014–04
  7. By: Dorra Najar
    Abstract: Fund managers compensation is a particular problem area in terms of its tax treatment in the United States and some European countries. This problem originates in the difficulty of defining these particular forms of incentive and therefore their estimated fair value. Based on the literature, carried interest, which is one of the most common profit-sharing arrangements observed in practice, may be considered as an option characterized by several constraints. The use of classical option-pricing models is inappropriate to take into account all these constraints. In this paper, we build a model to estimate the expected revenue to managers as a function of their investor contracts and we test how this estimated revenue varies across the characteristics of funds. We used the Monte Carlo simulation model and we introduced the non-marketability discount of the carried interest in order to calculate its fair value. A sensitivity analysis is performed in order to show the change in the fair value of carried interest after the change of each criterion. We find sharp differences between venture capital (VC) and buyout (BO) funds and between “deal by deal funds” and “whole funds”.
    Keywords: private equity; venture capital; managerial compensation; simulations
    JEL: G1 G2 G3 G17 G24 G34
    Date: 2014–02–25
  8. By: A. Agreda; K. Tucci
    Abstract: We present a model in which we investigate the structure and evolution of a random network that connects agents capable of exchanging wealth. Economic interactions between neighbors can occur only if the difference between their wealth is less than a threshold value that defines the width of the economic classes. If the interchange of wealth cannot be done, agents are reconnected with another randomly selected agent, allowing the network to evolve in time. On each interaction there is a probability of favoring the poorer agent, simulating the action of the government. We measure the Gini index, having real world values attached to reality. Besides the network structure showed a very close connection with the economic dynamic of the system.
    Date: 2014–04
  9. By: Li, Yushu (Dept. of Business and Management Science, Norwegian School of Economics); Reese, Simon (Dept. of Economics, School of Economics and Management, Lund University)
    Abstract: The Hidden Markov Model (HMM) has been widely used in regime classification and turning point detection for econometric series after the decisive paper by Hamilton (1989). The present paper will show that when using HMM to detect the turning point in cyclical series, the accuracy of the detection will be influenced when the data are exposed to high volatilities or combine multiple types of cycles that have different frequency bands. Moreover, outliers will be frequently misidentified as turning points. The present paper shows that these issues can be resolved by wavelet multi-resolution analysis based methods. By providing both frequency and time resolutions, the wavelet power spectrum can identify the process dynamics at various resolution levels. We apply a Monte Carlo experiment to show that the detection accuracy of HMMs is highly improved when combined with the wavelet approach. Further simulations demonstrate the excellent accuracy of this improved HMM method relative to another two change point detection algorithms. Two empirical examples illustrate how the wavelet method can be applied to improve turning point detection in practice.
    Keywords: HMM; turning point; wavelet; wavelet power spectrum; outlier
    JEL: C22 C38 C63
    Date: 2014–03–25
  10. By: Akin Osman Kazakci (CGS - Centre de Gestion Scientifique - MINES ParisTech - École nationale supérieure des mines de Paris)
    Abstract: The current paper offers a perspective on what we term conceptive intelligence - the capacity of an agent to continuously think of new object definitions (tasks, problems, physical systems, etc.) and to look for methods to realize them. The framework, called a Brouwer machine, is inspired by previous research in design theory and modeling, with its roots in the constructivist mathematics of intuitionism. The dual constructivist perspective we describe offers the possibility to create novelty both in terms of the types of objects and the methods for constructing objects. More generally, the theoretical work on which Brouwer machines are based is called imaginative constructivism. Based on the framework and the theory, we discuss many paradigms and techniques omnipresent in AI research and their merits and shortcomings for modeling aspects of design, as described by imaginative constructivism. To demonstrate and explain the type of creative process expressed by the notion of a Brouwer machine, we compare this concept with a system using genetic algorithms for scientific law discovery.
    Date: 2014–04–02
  11. By: Grimm, Veronika; Martin, Alexander; Weibenzahl, Martin; Zoettl, Gregor
    Abstract: In this paper we propose a three-level computational equilibrium model that allows to analyze the impact of the regulatory environment on transmission line expansion (by the regulator) and investment in generation capacity (by private firms) in liberalized electricity markets. The basic model analyzes investment decisions of the transmission operator (TO) and private firms in expectation of an energy only market and cost-based redispatch. In different specifications we consider the cases of one versus two price zones (market splitting) and analyze different approaches to recover network cost, in particular lump sum, capacity based, and energy based fees. In order to compare the outcomes of our multi-stage market model with the first best benchmark, we also solve the corresponding integrated planer problem. In two simple test networks we illustrate that energy only markets can lead to suboptimal locational decisions for generation capacity and thus, imply excessive network expansion. Market splitting heals those problems only partially. Those results obtain for both, capacity and energy based network tariffs, although investment slightly differs across those regimes. --
    Keywords: Electricity markets,Network Expansion,Generation Expansion,Investment Incentives,Computational Equilibrium Models,Transmission Management
    Date: 2014
  12. By: Keiji Saito (Graduate School of Economics, University of Tokyo); Shin-ichi Hanada (Faculty of Economics, Kanazawa Seiryo University); Hiroshi Ohashi (Faculty of Economics, University of Tokyo)
    Abstract: This paper examines the effects of large-scale penetration of solar PV in Japan. Since the government adopted in 2009 the feed-in tariff on renewable energy sources, the solar PV has been popular for both for residential and non-residential users. This paper employs power system simulation and assess several scenarios on the penetration of solar PV in 2020. The paper finds two major results; (1) the penetration is reached at 4000GW, the annual peak demand would shift from summer to winter. No kW value would be placed on an additional unit of solar PV. (2) Since solar PV would replace thermal power generation, the fuel cost of the generation would reduce with penetration of solar PV, but at a slower rate.
    Date: 2014–02
  13. By: Calypso Herrera; Louis Paulot
    Abstract: In this paper we introduce a new algorithm for American Monte Carlo that can be used either for American-style options, callable structured products or for computing counterparty credit risk (e.g. CVA or PFE computation). Leveraging least squares regressions, the main novel feature of our algorithm is that it can be fully parallelized. Moreover, there is no need to store the paths and the payoff computation can be done forwards: this allows to price structured products with complex path and exercise dependencies. The key idea of our algorithm is to split the set of paths in several subsets which are used iteratively. We give the convergence rate of the algorithm. We illustrate our method on an American put option and compare the results with the Longstaff-Schwartz algorithm.
    Date: 2014–04

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