nep-cmp New Economics Papers
on Computational Economics
Issue of 2014‒11‒01
nine papers chosen by
Stan Miles
Thompson Rivers University

  1. Economic Implications of Deeper South Asian–Southeast Asian Integration : A CGE Approach By Ganeshan Wignaraja; Peter Morgan; Michael Plummer; Fan Zhai
  2. Monte Carlo Approximate Tensor Moment Simulations By Juan C. Arismendi; Herbert Kimura
  3. Fiscal extension to ORANI-IT: a computable general equilibrium model for Italy By Felici Francesco; Maria Gesualdo
  4. Optimal Monitoring and Mitigation of Systemic Risk in Financial Networks By Zhang Li; Xiaojun Lin; Borja Peleato-Inarrea; Ilya Pollak
  5. The impact of exogenous shocks on households in the Pacific : a micro-simulation analysis By Cororaton, Caesar B.; Knight, David S.
  6. Optimal Contracts, Aggregate Risk, and the Financial Accelerator By Carlstrom, Charles T.; Fuerst, Timothy S.; Paustian, Matthius
  7. The Computational Economics Projects at UWA: A review Creation Date: 1986 By K.W. Clements
  8. Targeting Long Rates in a Model with Segmented Markets By Carlstrom, Charles T.; Fuerst, Timothy S.; Paustian, Matthius
  9. Space-filling location selection By Philippe Van Kerm

  1. By: Ganeshan Wignaraja (Asian Development Bank Institute (ADBI)); Peter Morgan; Michael Plummer; Fan Zhai
    Abstract: South and Southeast Asian economic integration via increased trade flows has been increasing significantly over the past 2 decades, but the level of trade continues to be relatively low. This underperformance has been due to both policy-related variables—relatively high tariff and non-tariff barriers—and high trade costs due to inefficient “hard†and “soft†infrastructure (costly transport links and problems related to trade facilitation). The goal of this study is to estimate the potential gains from South Asian–Southeast Asian economic integration using an advanced computable general equilibrium (CGE) model. The paper estimates the potential gains to be large, particularly for South Asia, assuming that the policy- and infrastructure-related variables that increase trade costs are reduced via economic cooperation and investment in connectivity. As Myanmar is a key inter-regional bridge and has recently launched ambitious, outward-oriented policy reforms, the prospects for making progress in these areas are strong. If the two regions succeed in dropping inter-regional tariffs, reducing non-tariff barriers by 50%, and decreasing South Asian–Southeast Asian trade costs by 15%—which this paper suggests is ambitious but attainable—welfare in South Asia and Southeast Asia would rise by 8.9% and 6.4% of gross domestic product, respectively, by 2030 relative to the baseline. These gains would be driven by rising exports and competitiveness, particularly for South Asia, whose exports would rise by two thirds (64% relative to the baseline). Hence, the paper concludes that improvements in connectivity would justify a high level of investment. Moreover, it supports a two-track approach to integration in South Asia, i.e., deepening intra-regional cooperation together with building links to Southeast Asia.
    Keywords: South Asian–Southeast Asian Integration, CGE approach, intra-regional cooperation, South Asia, Southeast Asia
    JEL: C68 F12 F13 F15 F17
    Date: 2014–08
  2. By: Juan C. Arismendi (ICMA Centre, Henley Business School, University of Reading); Herbert Kimura
    Abstract: An algorithm to generate samples with approximate first-, second-, and third-order moments is presented extending the Cholesky matrix decomposition to a Cholesky tensor decomposition of an arbitrary order. The tensor decomposition of the first-, second-, and third-order objective moments generates a non-linear system of equations. The algorithm solves these equations by numerical methods. The results show that the optimisation algorithm delivers samples with an approximate error of 0.1%–4% between the components of the objective and the sample moments. An application for sensitivity analysis of portfolio risk assessment with Value-at-Risk VaR) is provided. A comparison with previous methods available in the literature suggests that methodology proposed reduces the error of the objective moments in the generated samples
    Keywords: Monte Carlo Simulation, Higher-order Moments, Exact Moments Simulation, Stress-testing
    JEL: C14 C15 G32
    Date: 2014–08
  3. By: Felici Francesco; Maria Gesualdo
    Abstract: In this paper we expand the national multi-sectoral computable general equilibrium (CGE) model ORANI-IT, allowing for a number of fiscal tools. The outcome is a computable general equilibrium tax model of Italy, developed at the Department of Treasury of the Italian Ministry of the Economy and Finance, in collaboration with the Centre of Policy Studies (CoPS), and currently managed at Sogei S.p.A. (IT Economia - Modelli di Previsione ed Analisi Statistiche). The paper demonstrates in considerable detail the methodology to incorporate a fiscal extension, that mainly consists in including a detailed tax information into existing commodity and production tax matrices, to the existing national model. In particular, the procedure to accommodate national data on tax revenues within the model’s database and explicitly model the full range of indirect taxes within the theoretical structure is reported. Within the fiscal extension, the model includes a comprehensive model of Value-Added-Tax (VAT), which accounts for all the typical features of a complex VAT system - such as multi-production, multiple tax rates, different degrees of exemptions and refundability factors - as well as of EU-specific matters relating to taxation of intra-EU exports, and to the scope of VAT and exemptions of public interest. Interestingly, the framework developed in this paper for Italy may be extendible to other European countries, which fall within the EU VAT legislation. The model also features a special emphasis on sectors national accounts, with a detailed system of equations describing government and households budget revenues and expenditures and transactions with the rest of the world. The output is a powerful tool for acquiring new insights on the current fiscal system, through the assessment of tailored fiscal reforms, which can consist of either changes in tax rates and tax bases. Future research may be pursued in the application of the model for evaluating alternative policies.
    Keywords: Computable general equilibrium (CGE) tax models, indirect taxes, value-added-tax, sector accounts, Italy
    JEL: C68 H20 H25
    Date: 2014–09
  4. By: Zhang Li; Xiaojun Lin; Borja Peleato-Inarrea; Ilya Pollak
    Abstract: This paper studies the problem of optimally allocating a cash injection into a financial system in distress. Given a one-period borrower-lender network in which all debts are due at the same time and have the same seniority, we address the problem of allocating a fixed amount of cash among the nodes to minimize the weighted sum of unpaid liabilities. Assuming all the loan amounts and asset values are fixed and that there are no bankruptcy costs, we show that this problem is equivalent to a linear program. We develop a duality-based distributed algorithm to solve it which is useful for applications where it is desirable to avoid centralized data gathering and computation. Since some applications require forecasting and planning for a wide variety of different contingencies, we also consider the problem of minimizing the expectation of the weighted sum of unpaid liabilities under the assumption that the net external asset holdings of all institutions are stochastic. We show that this problem is a two-stage stochastic linear program. To solve it, we develop two algorithms based on Monte Carlo sampling: Benders decomposition algorithm and projected stochastic gradient descent. We show that if the defaulting nodes never pay anything, the deterministic optimal cash injection allocation problem is an NP-hard mixed-integer linear program. However, modern optimization software enables the computation of very accurate solutions to this problem on a personal computer in a few seconds for network sizes comparable with the size of the US banking system. In addition, we address the problem of allocating the cash injection amount so as to minimize the number of nodes in default. For this problem, we develop a heuristic algorithm which uses reweighted l1 minimization. We show through numerical simulations that the solutions calculated by our algorithm are close to optimal.
    Date: 2014–10
  5. By: Cororaton, Caesar B.; Knight, David S.
    Abstract: This paper seeks to provide evidence on the extent of household vulnerability to exogenous economic shocks in the Pacific region and consider policy options that help to manage this risk. Characteristics of the region such as remoteness, small size, dispersion, and urbanizing populations lead to pronounced vulnerabilities. The paper presents macroeconomic and distributional analysis and complements it with results of a micro-simulation model customized for this work based on a model used previously by the World Bank to analyze the impacts of the Food and Fuel Price Crisis. The results of micro-simulations serve to highlight the very high levels of economic vulnerability faced in the region. Impacts of economic shocks are not confined to well-off individuals, but have major impacts on the poor. Even moderate shocks are likely to push sizeable fractions of the population below the poverty line. The shocks considered are not worst case scenarios, but those that can and have occurred frequently. The results show that households are hard hit by increases in oil prices, especially in remote islands where freight costs are higher, while countries on aggregate, and individual households, are exposed to volatility in the prices of the one or two imported food commodities that they depend on. Livelihoods are also often driven by external demand. In particular, many poor households in countries like Papua New Guinea have livelihood strategies centered on cash crops. The results point to the importance of helping households of the Pacific to manage the risk inherent in their lives while prudently using macroeconomic tools at the disposal of the government.
    Keywords: Markets and Market Access,Rural Poverty Reduction,Transport Economics Policy&Planning,Emerging Markets,Food&Beverage Industry
    Date: 2014–09–01
  6. By: Carlstrom, Charles T. (Federal Reserve Bank of Cleveland); Fuerst, Timothy S. (University of Notre Dame); Paustian, Matthius (Bank of England)
    Abstract: This paper derives the optimal lending contract in the financial accelerator model of Bernanke, Gertler and Gilchrist (1999), hereafter BGG. The optimal contract includes indexation to the aggregate return on capital, household consumption, and the return to internal funds. This triple indexation results in a dampening of fluctuations in leverage and the risk premium. Hence, compared with the contract originally imposed by BGG, the privately optimal contract implies essentially no financial accelerator.
    Keywords: Agency costs; CGE models; optimal contracting
    JEL: C68 E44 E61
    Date: 2014–10–16
  7. By: K.W. Clements
  8. By: Carlstrom, Charles T. (Federal Reserve Bank of Cleveland); Fuerst, Timothy S. (University of Notre Dame); Paustian, Matthius (Bank of England)
    Abstract: This paper develops a model of segmented financial markets in which the net worth of financial institutions limits the degree of arbitrage across the term structure. The model is embedded into the canonical Dynamic New Keynesian (DNK) framework. We estimate the model using data on the term premium. Our principal results include the following. First, the estimated segmentation coefficient implies a nontrivial effect of central bank asset purchases on yields and real activity. Second, there are welfare gains to having the central bank respond to the term premium, eg., including the term premium in the Taylor rule. Third, a policy that directly targets the term premium sterilizes the real economy from shocks originating in the financial sector. A term premium peg can have signifi cant welfare effects.
    Keywords: Agency costs; CGE models; optimal contracting
    JEL: C68 E44 E61
    Date: 2014–10–15
  9. By: Philippe Van Kerm (CEPS/INSTEAD, Luxembourg)
    Abstract: This presentation describes a Stata implementation of a space-filling location selection algorithm. The objective is to select a subset from a discrete list of locations so that the spatial coverage of the locations by the selected subset is optimized according to a geometric criterion. Such an algorithm designed for geographical site selection is useful more generally to determine a grid of points that "covers" a data matrix as needed in various nonparametric estimation procedures. Various examples illustrate usage of the user-written command spacefill.
    Date: 2014–09–28

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