nep-cmp New Economics Papers
on Computational Economics
Issue of 2014‒09‒25
fourteen papers chosen by

  1. Climate Change Mitigation, Economic Growth and the Distribution of Income By G.A. Meagher; P.D. Adams; Felicity Pang
  2. TREMOD: A microsimulation model for the Province of Trento (Italy) By Azzolini, Davide; Bazzoli, Martina; De Poli, Silvia; Fiorio, Carlo; Poy, Samuele
  3. A dynamic CGE modelling approach for analyzing trade-offs in climate change policy options: the case of Green Climate Fund By Alessandro Antimiani; Valeria Costantini; Anil Markandya; Chiara Martini; Alessandro Palma; ; Maria Cristina Tommasino
  4. Fast and Simple Method for Pricing Exotic Options using Gauss-Hermite Quadrature on a Cubic Spline Interpolation By Xiaolin Luo; Pavel V. Shevchenko
  5. Generating MATLAB Matrices from IMPLAN CGE Files By Mason Pierce
  6. Lower Bounds on Approximation Errors: Testing the Hypothesis That a Numerical Solution Is Accurate? By Kenneth L. Judd; Lilia Maliar; Serguei Maliar
  7. Sea Container Terminals By Gharehgozli, A.H.; Roy, D.; de Koster, M.B.M.
  8. A General Microsimulation Model for the EU VAT with a specific Application to Germany By Lars-H. R. Siemers
  9. Composite Input-Output Production Functions By Randall W. Jackson
  10. Outside the corridor : fiscal multipliers and business cycles into an agent based models with liquidity constraints By Mauro Napoletano; Jean-Luc Gaffard; Andrea Roventini
  11. Income redistribution in the European Union By Avram, Silvia; Levy, Horacio; Sutherland, Holly
  12. Computation of equilibrium values in the Baron and Ferejohn bargaining model By Tasos Kalandrakis
  13. The Energy Implications of City Size and Density By Anthony M. Yezer; William Larson
  14. The Ramsey Steady State under Optimal Monetary and Fiscal Policy for Small Open Economies By Angelo Marsiglia Fasolo

  1. By: G.A. Meagher; P.D. Adams; Felicity Pang
    Abstract: In October 2008, the Australian Government released a major report: Australia's Low Pollution Future: The Economics of Climate Change Mitigation. In that report, various scenarios are used to explore the potential economic effects of climate mitigation policy in Australia. One of the scenarios, designated CPRS-5, a Carbon Pollution Reduction Scheme (CPRS) aims to reduce emissions to 5 per cent below 2000 levels by 2020. It is consistent with stabilisation at around 550 parts per million of carbon dioxide equivalent (ppm CO2-e) in the atmosphere by 2100. In assessing the likely effects these policies on the future growth of output and employment by industry, the Government's report relies mainly on economic modelling using the MMRF applied general equilibrium model of the Australian economy. Results are reported for 58 industries. This paper begins by using the same model to closely reproduce the analysis of the CPRS-5 scenario conducted for the report. However, this time the MMRF model is enhanced by a labour market extension MLME which allows the employment results to be extended to 81 occupations and 64 skill groups. The enhanced model is then used in a top-down configuration with an income distribution extension MIDE and a microsimulation extension MMSE to generate changes in income. In MIDE, income redistributions between households (taken collectively), corporate trading enterprises, financial trading enterprises, the government and foreigners (the 'institutions') are modelled by the inclusion of the associated current and capital accounts from the Australian System of National Accounts. Within the household sector, changes in disposable income from unincorporated enterprises (differentiated by 17 industries), compensation of employees (differentiated by 81 occupations), property income, and net transfers from other institutions are separately modelled. On the income side, one hundred types of recipient are identified corresponding to personal income percentiles. On the expenditure side, six hundred types of household are identified, this time differentiated by household income and the ages of its members. This arrangement allows changes in real income to be computed using household specific CPIs. The microsimulation extension MMSE uses MIDE results to update the incomes of more than 13,500 persons. The effects of the climate change mitigation policies on the incomes of various socio-economic groups are then be obtained by aggregation.
    Keywords: CGE modelling, climate change mitigation, distribution of employment, distribution of income, microsimulation
    JEL: C68 D31 D58 J23 O56 Q52
    Date: 2014–09
  2. By: Azzolini, Davide; Bazzoli, Martina; De Poli, Silvia; Fiorio, Carlo; Poy, Samuele
    Abstract: This paper presents the main characteristics of TREMOD, a tax-benefit microsimulation model for the Italian province of Trento (Italy). TREMOD is based upon the EUROMOD platform microsimulation model, and its purpose is to inform local tax and welfare policies. TREMOD is a flexible tool that allows simulation of the effects of different types of public policies on a plurality of outcomes such as, for example, individuals’ and households’ income and well-being. The main strength of TREMOD is the high quality of the data used for its construction. The input database has been obtained by matching survey data (derived from a local representative survey on households’ life conditions, Indagine sulle condizioni di vita delle famiglie trentine, ICFT) with administrative data on individual income tax returns. This aspect is one of the main strengths of TREMOD compared with other experiences in microsimulation modelling. As we show in this paper, the combination of survey and administrative data ensures good precision in the simulations and will allow for the integration of other administrative data sources including pension and labour market records. The first version of TREMOD is a ‘static’ microsimulation model.
    Date: 2014–07–11
  3. By: Alessandro Antimiani; Valeria Costantini; Anil Markandya; Chiara Martini; Alessandro Palma; ; Maria Cristina Tommasino
    Abstract: We investigate the trade-offs between economic growth and low carbon targets for developing and developed countries in the period up to 2035. Policy options are evaluated with an original version of the dynamic CGE model GDynE. Abatement costs appear to be strongly detrimental to economic growth for developing countries. We investigate options for reducing these costs that are consistent with a green growth strategy. We show that Green Climate Fund financed through a levy on carbon taxation can benefit all parties, and larger benefits are associated with investment of the Green Climate Fund to foster energy efficiency in developing countries.
    Keywords: Climate Change Policies, Green Growth, Developing Countries, Dynamic CGE Energy Model, Green Climate Fund
    Date: 2014–05
  4. By: Xiaolin Luo; Pavel V. Shevchenko
    Abstract: There is a vast literature on numerical valuation of exotic options using Monte Carlo, binomial and trinomial trees, and finite difference methods. When transition density of the underlying asset or its moments are known in closed form, it can be convenient and more efficient to utilize direct integration methods to calculate the required option price expectations in a backward time-stepping algorithm. This paper presents a simple, robust and efficient algorithm that can be applied for pricing many exotic options by computing the expectations using Gauss-Hermite integration quadrature applied on a cubic spline interpolation. The algorithm is fully explicit but does not suffer the inherent instability of the explicit finite difference counterpart. A `free' bonus of the algorithm is that it already contains the function for fast and accurate interpolation of multiple solutions required by many discretely monitored path dependent options. For illustration, we present numerical results for pricing a series of American options with either Bermudan (discrete) or continuous exercise features, in comparison with some of the most advanced or best known finite difference algorithms in the literature. This series of tests shows that the new algorithm, despite its simplicity, can rival with some of the best one dimensional finite difference algorithms in accuracy and it is significantly faster.
    Date: 2014–08
  5. By: Mason Pierce (Regional Research Institute, West Virginia University)
    Abstract: This document describes the process used to create usable tables from the 27 individual GAMS files in .DAT format generated by IMPLAN software. 26 of these are social accounting matrix (SAM) data files and 1 is an employment-by-industry data file. By performing the appropriate command in MATLAB, the user can create the desired table, for example use or make tables, which can then be used for various purposes. IMPLAN 2 and IMPLAN 3 produce .DAT files of different formats. This document details the process of handling each of these file formats.
    Keywords: IO, IMPLAN
    JEL: C6
    Date: 2014–03–12
  6. By: Kenneth L. Judd (Hoover Institution, Stanford University); Lilia Maliar (Department of Economics, Stanford University); Serguei Maliar (Leavey School of Business, Santa Clara University)
    Abstract: We propose a novel methodology for evaluating the accuracy of numerical solutions to dynamic economic models. Specifically, we construct a lower bound on the size of approximation errors. A small lower bound on errors is a necessary condition for accuracy: If a lower error bound is unacceptably large, then the actual approximation errors are even larger, and hence, we reject the hypothesis that a numerical solution is accurate. Our accuracy analysis is logically equivalent to hypothesis testing in statistics. As an illustration of our methodology, we assess approximation errors in the first- and second-order perturbation solutions for two stylized models: a neoclassical growth model and a new Keynesian model. The errors are small for the former model but unacceptably large for the latter model under some empirically relevant parameterizations.
    Keywords: approximation errors; best case scenario, error bounds, Euler equation residuals; accuracy; numerical solution; algorithm; new Keynesian model
    JEL: C61 C63 C68 E31 E52
    Date: 2014–08
  7. By: Gharehgozli, A.H.; Roy, D.; de Koster, M.B.M.
    Abstract: Due to a rapid growth in world trade and a huge increase in containerized goods, sea container terminals play a vital role in globe-spanning supply chains. Container terminals should be able to handle large ships, with large call sizes within the shortest time possible, and at competitive rates. In response, terminal operators, shipping liners, and port authorities are investing in new technologies to improve container handling infrastructure and operational efficiency. Container terminals face challenging research problems which have received much attention from the academic community. The focus of this paper is to highlight the recent developments in the container terminals, which can be categorized into three areas: (1) innovative container terminal technologies, (2) new OR directions and models for existing research areas, and (3) emerging areas in container terminal research. By choosing this focus, we complement existing reviews on container terminal operations.
    Keywords: container terminal, literature review, optimization, heuristic, simulation
    Date: 2014–07–21
  8. By: Lars-H. R. Siemers
    Abstract: The sales taxes in the EU - and in several other countries - are practiced as value- added tax of the consumption type with invoice method. Literature on microsimulation models (MSM) for this type of VAT is rare, though the importance of VAT has continuously increased. We discuss the issues of VAT-MSM in detail and develop a basic general VAT-MSM, applicable to the EU member states (and beyond). To illustrate the functioning of the general model, we apply it in detail to the specific case of Germany. We provide comprehensive estimation results for the distributional and fiscal effects of the German VAT. Finally, we simulate the effects of a small VAT reform in 2010, comparing static and behavioral response simulations.
    Keywords: VAT microsimulation, VAT exemption, RWI-VAT-SIM, EU
    JEL: H22 H23 H24 C6 D12 D31 D63
    Date: 2014
  9. By: Randall W. Jackson (Regional Research Institute, West Virginia University)
    Abstract: This document describes the algorithm used for creating an aggregated linear production function for an industry by weighting subsector production functions. The result can be used as a column in an interindustry (IxI) coefficients table or in a standard Use table (CxI) depending on the units (C or I) of the input data.
    Keywords: IO
    JEL: C67 R15
    Date: 2013–08–09
  10. By: Mauro Napoletano (OFCE); Jean-Luc Gaffard (OFCE); Andrea Roventini (Department of economics)
    Abstract: We build an agent-based model to study how _scal multipliers can change over the business cycle. Our approach considers the economy as a complex evolving system. In that, _scal state-dependent multipliers are emergent disequilibrium phenomenon stemming from the interaction among an ecology of heterogeneous agents. We study _scal multipliers in response to di_erent microeconomic shocks hitting the economy. We show that de_cit-spending _scal policy dampens the e_ect of a shock and lowers its persistence. Moreover, we show that the size and dynamics of the _scal multi- plier is inversely related to the evolution of credit rationing in the aftermath of the shock. We also investigate the e_ects of two di_erent balanced budget rules. In the _rst type of such experiments, government expenditure is constrained to be equal to tax revenues of each period. In the second one the tax rate is eventually raised to balance a given level of government expenditure. We show that _scal multipliers are very low with both balanced-budget rules. Finally, we show that _scal multipliers are higher into more leveraged economies.
    Keywords: keynesian economics; fiscal multipliers; corridor effects; agent based models; liquidity constraints
    JEL: E63 E21 C63
    Date: 2014–09
  11. By: Avram, Silvia; Levy, Horacio; Sutherland, Holly
    Abstract: The systems of direct taxes and cash benefits in the 27 Member States of the European Union (EU) vary considerably in size and structure. We explore their redistributive effects using EUROMOD, the tax-benefit microsimulation model for the EU. As well as describing redistributive effects in aggregate this allows us to assess and compare the effectiveness of individual types of policy in reducing income disparities. We consider the following categories of benefits and taxes: income taxes, tax allowances, tax credits, social contributions, cash benefits designed to target the poor or redistribute inter-personally (through means-testing) as well as cash benefits intended to redistribute intra-personally across the lifecycle (through social insurance or contingency-based entitlement). We derive results for the 27 members of the European Union using policies in effect in 2010 and present them for each country separately as well as for the EU as a whole.
    Date: 2014–04–30
  12. By: Tasos Kalandrakis (W. Allen Wallis Institute of Political Economy, 107 Harkness Hall, University of Rochester, Rochester, NY 14627-0158)
    Abstract: Computation of exact equilibrium values for n-player divide-the-dollar legislative bargaining games as in Baron and Ferejohn (1989) with general quota voting rules, recognition probabilities, and discount factors, can be achieved by solving at most n bivariate square linear systems of equations. This approach recovers Eraslan's (2002) uniqueness result and relies on a characterization of equilibria in terms of two variables that satisfy a pair of piecewise linear equations.
    Date: 2014–08
  13. By: Anthony M. Yezer (Department of Economics/Institute for International Economic Policy, George Washington University); William Larson (Bureau of Economic Analysis)
    Abstract: This paper develops a new urban simulation model with endogenous population, housing supply and demand, and highway use and congestion. These features allow the model to simulate cities of different sizes with a single parameterization and hence to study the partial effect of city size differences on economic activity. The model is applied to the important problem of the energy implications of city size and density. Energy consumption in housing and commuting is calculated based on the structure type and size of housing units, consumption of a numeraire good, and commuting distances and velocities on congested roadways. The surprising conclusion is that per capita energy consumption does not vary as city size increases. Households in larger cities consume less housing, commute longer (and slower), and consume more of the numeraire good. The energy use implications of these eff ects are offsetting for a laissez-faire city. However, common land use policies, speciï¬cally density limits and greenbelts, can positively or negatively affect both city welfare and the elasticity of energy use with respect to city size.
    Keywords: urban simulation, congestion, commuting, gasoline, greenbelt
    JEL: Q40 R14
    Date: 2014
  14. By: Angelo Marsiglia Fasolo
    Abstract: This paper describes the steady state allocations and prices for small open economies under optimal monetary and fiscal policy in a medium-scale DSGE model. The model encompasses the most common nominal and real rigidities normally found in the literature in a single framework. The Ramsey solution for the optimal monetary and fiscal policy is computed for a large space of the parameter set and for different combinations of fiscal policy instruments. Results show that, despite the large number of frictions in the model, optimal fiscal policy follows the usual results in the literature, with high taxes over labor income and low taxes (subsidies) on capital income. On the other hand, the choice of fiscal policy instruments is critical to characterize optimal monetary policy. Frictions associated with the small open economy framework do not play a critical role in characterizing the Ramsey planner's policy choices
    Date: 2014–07

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