nep-cmp New Economics Papers
on Computational Economics
Issue of 2014‒11‒12
eleven papers chosen by
Stan Miles
Thompson Rivers University

  1. Introducing Melitz-Style Firm Heterogeneity in CGE Models: Technical Aspects and Implications By Roberto Roson; Kazuhiko Oyamada
  2. Modeling Firm Heterogeneity in International Trade: Do Structural Effects Matter? By Roberto Roson; Kazuhiko Oyamada
  3. Heterogeneous responses to heterogeneous food price shocks in Senegal: insights from a CGE By Séne, Ligane Massamba
  4. Assessing Direct and Indirect Economic Impacts of a Flood Event Through the Integration of Spatial and Computable General Equilibrium Modelling By Lorenzo Carrera; Gabriele Standardi; Francesco Bosello; Jaroslav Mysiak
  5. Impact of import liberalisation on poverty: a dynamic computable general equilibrium and microsimulation analysis for Ghana By Obeng, Camara Kwasi
  6. Application of Ensemble Learning for Views Generation in Meucci Portfolio Optimization Framework By Didenko, Alexander; Demicheva, Svetlana
  7. Universality of Tsallis q-exponential of interoccurrence times within the microscopic model of cunning agents By Mateusz Denys; Tomasz Gubiec; Ryszard Kutner
  8. Demand Model Simulation in R with Endogenous Prices and Unobservable Quality By Toro Gonzalez, Daniel
  9. Inference Based on SVARs Identified with Sign and Zero Restrictions: Theory and Applications By Arias, Jonas E.; Rubio-Ramirez, Juan F.; Waggoner, Daniel F.
  10. Properties of risk capital allocation methods: Core Compatibility, Equal Treatment Property and Strong Monotonicity By Dóra Balog; Tamás László Bátyi; Péter Csóka; Miklós Pintér
  11. Border Region Bridge and Air Transport Predictability By Fullerton, Thomas M., Jr.; Mukhopadhyay, Somnath

  1. By: Roberto Roson; Kazuhiko Oyamada
    Abstract: This paper discusses which changes in the architecture of a standard CGE model are needed in order to introduce effects of trade and firm heterogeneity à la Melitz. Starting from a simple specification with partial equilibrium, one primary production factor and one industry, the framework is progressively enriched by including multiple factors, intermediate inputs, multiple industries (with a mixture of differentiated and nondifferentiated products), and a real general equilibrium closure. Therefore, the model structure is gradually made similar to a full-fledged CGE. Calibration techniques are discussed, and a number of changes from the original Melitz’s assumptions are also proposed. It is argued that the inclusion of industries with heterogeneous firms in a CGE framework does not simply make the Melitz model “operational”, but allows accounting for structural effects that may significantly affect the nature, meaning and implications of the model results.
    Keywords: Computable General Equilibrium Models, Melitz, Firm Heterogeneity, International Trade
    JEL: C63 C68 D51 D58 F12 L11
    Date: 2014
  2. By: Roberto Roson; Kazuhiko Oyamada
    Abstract: This paper analyzes the qualitative properties of a multisectoral, multiregional computable general equilibrium model where some industries include heterogeneous firms as in Melitz (2003). The model, formulated according to Roson and Oyamada (2014), adds endogenous productivity effects to a standard Walras-Ricardian framework. We argue that the inclusion of such effects changes the magnitude and distribution of welfare benefits obtainable by reductions in trade barriers, due to of comparative advantages. We illustrate the point through a numerical example, in which alternative model formulations are assessed. A standard neoclassic GE model, a basic Melitz model and a hybrid model are then compared. The three model versions are all calibrated with the same data set and an identical simulation experiment (a 50% reduction of transport costs between two regions) is carried out in the three cases. The results show that the hybrid model displays the largest welfare gains, as it combines Ricardian comparative advantages with Melitz average productivity improvements. However, they also show that new effects, not present in the original Ricardo and Melitz frameworks, are at a work..
    Keywords: Computable General Equilibrium Models, Melitz, Firm Heterogeneity, International Trade.
    JEL: C63 C68 D51 D58 F12 L11
    Date: 2014
  3. By: Séne, Ligane Massamba
    Abstract: In the wake of the 2008 food crisis, prices of food staples in Senegal rose, with a new wave driven by international price shocks and a decline in productivity; these effects caused sub-optimal performance in the agricultural sector. This paper attempts to identify the implications of these recent price movements on the economy and on the welfare of general households. Our results show that non-agricultural households in rural areas are hurt the most by changes in the prices of staple foods; in urban areas, it appears that higher food prices may substantially affect agricultural households. The simulated low-magnitude changes in transaction costs in the agricultural sector have an impact on poverty.
    Keywords: food prices, food security, productivity, poverty reduction, agriculture, Computable General Equilibrium Model
    JEL: E31 I32 Q17 Q18
    Date: 2014–09–24
  4. By: Lorenzo Carrera (Fondazione Eni Enrico Mattei, Ca’ Foscari University of Venice and Euro-Mediterranean Centre on Climate Change); Gabriele Standardi (Fondazione Eni Enrico Mattei and Euro-Mediterranean Centre on Climate Change); Francesco Bosello (Fondazione Eni Enrico Mattei, Euro-Mediterranean Centre Climate Change and University of Milan); Jaroslav Mysiak (Fondazione Eni Enrico Mattei and Euro-Mediterranean Centre on Climate Change)
    Abstract: In this paper we developed and tested an integrated methodology for assessing direct and indirect economic impacts of flooding. The methodology combines a spatial analysis of damage to physical stocks with a general economic equilibrium approach using a regionally-calibrated (to Italy) version of a Computable General Equilibrium (CGE) global model. We applied the model to the 2000 Po river flood. To account for the uncertainty in the induced effects on regional economies, we explored three disruption and two recovery scenarios. The results prove that: i) indirect losses are a significant share of direct losses, and ii) the model is able to capture both positive and negative economic effects of a disaster in different areas of the same country. The assessment of indirect impacts is essential for a full understanding of the economic outcomes of natural disasters.
    Keywords: Flood Risk, Indirect Impacts, Computable General Equilibrium, Natural Disasters
    JEL: Q5 Q54
    Date: 2014–10
  5. By: Obeng, Camara Kwasi
    Abstract: Incidence of poverty for Ghana has reduced from about 52% in 1991/92 to 28.5% in 2005/06. This is a remarkable drop in the incidence of poverty, but the current level is still high. Equally high are the levels of the depth and severity of poverty. This means that any policy pursued by the country must aim at further reducing the incidence, depth and severity of poverty. A number of policies and programmes have been implemented to reduce extreme in Ghana. On such policy, liberalisation of import trade has been implemented extensively in the country even though its long run contribution to poverty reduction is not clear in the trade literature. Therefore, this study examined the long run impact of import liberalization on the incidence, depth and severity of poverty at the national and household levels. The investigation was carried out using a recursive dynamic computable general equilibrium and a microsimulation model calibrated to the 2005 Social Accounting Matrix (SAM) of Ghana. In spite of the strong criticism against import liberalisation as being anti-growth and poverty enhancing, the results showed that the net effect of import liberalisation leads to reduction in the incidence, depth and severity of poverty at the national and household levels in the long run. However, the benefits of import liberalisation accrue more to urban households than rural households. This finding is due to the fact that urban households, generally, are net consumers of imported goods and services than rural households. In addition, the urban areas have the necessary economic infrastructure and so are economically vibrant, thereby offering huge opportunities for people to participate in international trading activities. The study recommends that import liberalisation must continue to be part of the poverty alleviation strategy of government for Ghana Post 2015 and that government focuses poverty alleviation policies more in the rural areas.
    Keywords: Import Liberalization, Tariff Revenue, Poverty, SAM, CGE, Microsimulation, Ghana
    JEL: F1 F13 F14 O5
    Date: 2014–08–29
  6. By: Didenko, Alexander; Demicheva, Svetlana
    Abstract: Modern Portfolio Theory assumes that decisions are made by individual agents. In reality most investors are involved in group decision-making. In this research we propose to realize group decision-making process by application of Ensemble Learning algorithm, in particular Random Forest. Predicting accurate asset returns is very important in the process of asset allocation. Most models are based on weak predictors. Ensemble Learning algorithms could significantly improve prediction of weak learners by combining them into one model, which will have superiority in performance. We combine technical fundamental and sentiment analysis in order to generate views on different asset classes. Purpose of the research is to build the model for Meucci Portfolio Optimization under views generated by Random Forest Ensemble Learning algorithm. The model was backtested by comparing with results obtained from other portfolio optimization frameworks.
    Keywords: Random Forest, Ensemble Learning, Meucci portfolio optimization, fundamental analysis, technical analysis
    JEL: C02 C6 C61
    Date: 2013–09
  7. By: Mateusz Denys; Tomasz Gubiec; Ryszard Kutner
    Abstract: We proposed the agent-based model of financial markets where agents (or traders) are represented by three-state spins located on the plane lattice or social network. The spin variable represents only the individual opinion (advice) that each trader gives to his nearest neighbors. In the model the agents can be considered as cunning. For instance, although agent having currently a maximal value of the spin advises his nearest neighbors to buy some stocks he, perfidiously, will sell some stocks in the next Monte Carlo step or will occupy a neutral position. In general, the trader has three possibilities: he can buy some stocks if his opinion change within a single time step is positive, sell some stocks if this change is negative, or remain inactive if his opinion is unchanged. The predictions of our model, found by simulations, well agree with the empirical universal distribution of interoccurrence times between daily losses below negative thresholds following the Tsallis q-exponential.
    Date: 2014–11
  8. By: Toro Gonzalez, Daniel
    Abstract: The aim of the present routine is to simulate a demand equation with endogenous prices and unobservable product quality and to retrieve the original parameters using the Control Function (CF) approach. The CF approach is a very useful and simple method to obtain unbiased estimates. The present R code helps to understand the underlying structure of the endogeneity problem in demand estimations. Results support the important bias correction of the CF approach.
    Keywords: R, Control Function, Demand Analisis, Endogeneity
    JEL: C13 C15 D49 E27
    Date: 2014–09–18
  9. By: Arias, Jonas E. (Federal Reserve Board of Governors); Rubio-Ramirez, Juan F. (Duke University); Waggoner, Daniel F. (Federal Reserve Bank of Atlanta)
    Abstract: Are optimism shocks an important source of business cycle fluctuations? Are deficit-financed tax cuts better than deficit-financed spending to increase output? These questions have been previously studied using structural vector autoregressions (SVAR) identified with sign and zero restrictions and the answers have been positive and definite in both cases. Although the identification of SVARs with sign and zero restrictions is theoretically attractive because it allows the researcher to remain agnostic with respect to the responses of the key variables of interest, we show that current implementation of these techniques does not respect the agnosticism of the theory. These algorithms impose additional sign restrictions on variables that are seemingly unrestricted that bias the results and produce misleading confidence intervals. We provide an alternative and efficient algorithm that does not introduce any additional sign restriction, hence preserving the agnosticism of the theory. Without the additional restrictions, it is hard to support the claim that either optimism shocks are an important source of business cycle fluctuations or deficit-financed tax cuts work best at improving output. Our algorithm is not only correct but also faster than current ones.
    Keywords: identification; sign restrictions; simulation
    JEL: C11 C32 E50
    Date: 2014–02–01
  10. By: Dóra Balog (Corvinus University of Budapest, Department of Finance); Tamás László Bátyi (University of California, Berkeley, Department of Economics); Péter Csóka (Momentum Game Theory Research Group, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Department of Finance, Corvinus University of Budapest); Miklós Pintér (Corvinus University of Budapest, Department of Mathematics and MTA-BCE Lendület Strategic Interactions Research Group)
    Abstract: In finance risk capital allocation raises important questions both from theoretical and practical points of view. How to share risk of a portfolio among its subportfolios? How to reserve capital in order to hedge existing risk and how to assign this to different business units? We use an axiomatic approach to examine risk capital allocation, that is we call for fundamental properties of the methods. Our starting point is Csóka and Pintér (2011) who show by generalizing Young (1985)'s axiomatization of the Shapley value that the requirements of Core Compatibility, Equal Treatment Property and Strong Monotonicity are irreconcilable given that risk is quantified by a coherent measure of risk. In this paper we look at these requirements using analytic and simulations tools. We examine allocation methods used in practice and also ones which are theoretically interesting. Our main result is that the problem raised by Csóka and Pintér (2011) is indeed relevant in practical applications, that is it is not only a theoretical problem. We also believe that through the characterizations of the examined methods our paper can serve as a useful guide for practitioners.
    Keywords: Coherent Measures of Risk, Risk Capital Allocation, Shapley value, Core, Simulation
    JEL: C71 G10
    Date: 2014–07
  11. By: Fullerton, Thomas M., Jr.; Mukhopadhyay, Somnath
    Abstract: Border region transportation forecast analysis is fraught with difficulty. In the case of El Paso, Texas and Ciudad Juarez, Chihuahua, Mexico, dual national business cycles and currency market fluctuations further complicate modeling efforts. Incomplete data samples and asymmetric data reporting conventions further confound forecasting exercises. Under these conditions, a natural alternative to structural econometric models to consider is neural network analysis. Neural network forecasts of air transportation and international bridge activity are developed using a multi-layered perceptron approach. Those out-of sample simulations are then compared to previously published forecasts produced with a system of simultaneous econometric equations. Empirical results indicate that the econometric approach is generally more accurate. In several cases, the two sets of forecasts are found to contain complementary information.
    Keywords: Regional Transport Demand; Neural Networks; Econometric Forecasting
    JEL: C53 R41
    Date: 2013–04–11

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