nep-cmp New Economics Papers
on Computational Economics
Issue of 2014‒12‒24
seventeen papers chosen by

  1. Global Optimization for Black-box Simulation via Sequential Intrinsic Kriging By Mehdad, E.; Kleijnen, Jack P.C.
  2. Vertical fiscal externalities and the environment By Christoph Böhringer; Nicholas Rivers; Hidemichi Yonezawa
  3. Stochastic Intrinsic Kriging for Simulation Metamodelling By Mehdad, E.; Kleijnen, Jack P.C.
  4. Impact Analysis of Economic Linkages of South Korea with North Korea Using a CGE Model By Euijune Kim; Hyewon Shin
  5. Transparency and Deliberation within the FOMC: a Computational Linguistics Approach By Hansen, Stephen; McMahon, Michael; Prat, Andrea
  6. Economic and Environmental Impacts of Electric Vehicle Society in Toyohashi City in Japan - A CGE Modeling Approach - By Yuzuru Miyata; Hiroyuki Shibusawa; Tomoaki Fujii
  7. The Impact of the 2014 Platinum Mining Strike in South Africa: An Economy-Wide Analysis By Heinrich Bohlmann; Petor Dixon; Maureen Rimmer; Jan Van Heerden
  8. Simulating the Dynamic Effects of Corporate Income Tax Cut in Finland By Valkonen, Tarmo; Kauppi, Eija; Suni, Paavo
  9. Optimizing Public Expenditure Allocations between Secondary and Higher Education By Vijay P. Ojha; Joydeep Ghosh
  10. Multivariate Versus Univariate Kriging Metamodels for Multi-Response Simulation Models (Revision of 2012-039) By Kleijnen, Jack P.C.; Mehdad, E.
  11. The Short- and Long-Run Damages of Fiscal Austerity: Keynes beyond Schumpeter By Giovanni Dosi; Mauro Napoletano; Andrea Roventini; Tania Treibich
  12. The impact of startup costs and the grid operator on the power price equilibrium By Miha Troha; Raphael Hauser
  13. Impact Assessment of European Clean Air policies in a CGE framework By Zoi Vrontisi; Jan Abrell; Frederik Neuwahl; Bert Saveyn; Fabian Wagner
  14. The impact of Basel III on financial (in)stability: An agent-based credit network approach By Krug, Sebastian; Lengnick, Matthias; Wohltmann, Hans-Werner
  15. To raise or not to raise: Impact assessment of Russia's gas price reform By Christophe Heyndrickx; Victoria Alexeeva-Taleebi; Natalia Tourdyeva
  16. After Crisis Scenarios for CEECs: A simulation through the MASST3 model By Roberta Capello; Andrea Caragliu
  17. What is the aggregate economic rate of return to foreign aid? By Arndt, Channing; Jones, Sam; Tarp, Finn

  1. By: Mehdad, E. (Tilburg University, Center For Economic Research); Kleijnen, Jack P.C. (Tilburg University, Center For Economic Research)
    Abstract: In this paper we investigate global optimization for black-box simulations using metamodels to guide this optimization. As a novel metamodel we introduce intrinsic Kriging, for either deterministic or random simulation. For deterministic simulation we study the famous `efficient global optimization' (EGO) method, substituting intrinsic Kriging for universal Kriging. For random simulation we investigate a state-of-the-art two-stage algorithm accounting for heteroscedastic variances of the simulation responses, and introduce a new variant with the following two features: (1) this variant uses intrinsic Kriging; (2) this variant uses a different procedure to allocate the total available number of replications over simulated points. We perform several numerical experiments with deterministic and random simulations, to compare (1) the classic EGO and our EGO with intrinsic Kriging; (2) the classic two-stage algorithm and our modified version. We conclude that in most experiments (1) EGO with intrinsic Kriging outperforms classic EGO; (2) there is no significant difference between the classic algorithm and our modifed two-stage algorithm.
    Keywords: global optimization; Gaussian process; Kriging; intrinsic Kriging; metamodel; computer experiment; Simulation
    JEL: C0 C1 C9 C15 C44
    Date: 2014
  2. By: Christoph Böhringer (Carl von Ossietzky Universität Oldenburg, Institut für Volkswirtschaftslehre & ZenTra); Nicholas Rivers (Graduate School of Public and International Affairs and Institute of the Environment, University of Ottawa); Hidemichi Yonezawa (University of Ottawa, Institute of the Environment)
    Abstract: We show that imposition of a state-level environmental tax in a federation crowds out preexisting federal taxes. We explain how this vertical fiscal externality can lead unilateral statelevel environmental policy to generate a welfare gain in the implementing state, at the expense of other states. Using a computable general equilibrium model of the Canadian federation, we show that vertical fiscal externalities can be the major determinant of the welfare change following environmental policy implementation by a state government. Our numerical simulations indicate that - as a consequence of vertical fiscal externalities - state governments can reduce greenhouse gas emissions by over 20 percent without any net cost to themselves.Length: 47 pages
    Keywords: fiscal externality, climate policy, federalism, computable general equilibrium
    Date: 2014–11
  3. By: Mehdad, E. (Tilburg University, Center For Economic Research); Kleijnen, Jack P.C. (Tilburg University, Center For Economic Research)
    Abstract: We derive intrinsic Kriging, using Matherons intrinsic random functions which eliminate the trend in classic Kriging. We formulate this intrinsic Kriging as a metamodel in deterministic and random simulation models. For random simulation we derive an experimental design that also specifies the number of replications that varies with the input combinations. We compare intrinsic Kriging and classic Kriging in several numerical experiments with deterministic and random simulations. These experiments suggest that intrinsic Kriging gives more accurate metamodel, in most experiments.
    Keywords: Gaussian process; Kriging; intrinsic Kriging; metamodel; computer experiment; simulation
    JEL: C0 C1 C9 C15 C44
    Date: 2014
  4. By: Euijune Kim; Hyewon Shin
    Abstract: The purpose of this paper is to estimate impacts of core infrastructure investments in North Korea on South and North Koreas. The investment expenditures of core infrastructure projects in North Korea are calibrated as 9.35 billion US$ including highway, railroad and industrial complex. Since South and North Koreas are based on market and planned economies respectively, the Computable General Equilibrium model is applied to the economic analysis of South Korea and an Input-Output Model for that of North Korea. The base year for the analysis is year of 2007 due to the data availability of North Korea. The CGE model for Korean economy accounts for the economic behavior of producers and consumers on the real side economy, following the neoclassical elasticity approach such as market-clearing prices, the maximization of a firm¡¯s profit, and a household¡¯s utility. This paper finds that the annual total output of North Korea would increase by 20.30 billion US$ with investments on infrastructure projects. This could result in increases of GDP of Korea by 2.16 billion US$ as a construction effect and by 0.08 billion US$ as an operation effect on the annual average.
    Keywords: CGE Model; Regional Economies; Economic Impact;
    JEL: R13
    Date: 2014–11
  5. By: Hansen, Stephen; McMahon, Michael; Prat, Andrea
    Abstract: How does transparency, a key feature of central bank design, affect the deliberation of monetary policymakers? We exploit a natural experiment in the Federal Open Market Committee in 1993 together with computational linguistic models (particularly Latent Dirichlet Allocation) to measure the effect of increased transparency on debate. Commentators have hypothesized both a beneficial discipline effect and a detrimental conformity effect. A difference-in-differences approach inspired by the career concerns literature uncovers evidence for both effects. However, the net effect of increased transparency appears to be a more informative deliberation process.
    Keywords: career concerns; deliberation; FOMC; monetary policy; transparency
    JEL: D78 E52 E58
    Date: 2014–05
  6. By: Yuzuru Miyata; Hiroyuki Shibusawa; Tomoaki Fujii
    Abstract: In this paper we explore economic and environmental impacts of promotion and realization of an electric vehicle society (EVS). More concretely, this paper emphasizes a CGE-modelling approach to evaluate the following issues: entire economic impacts of subsidies for promotion of an EVS, the possibility of carbon dioxide (CO2) emissions and prices reduction, a change of industrial structure towards an EVS, and a modal shift towards an EVS. Our simulation results demonstrate that after applying 20% subsidies to five industries including electric vehicles (EVs) manufacturing, EV transport, solar power generation, cogeneration and other transport, the total industrial output and municipal GDP increase. A large growth rates are found in industries where subsidies are introduced except non-ferrous metal industry. However, it is motivating that decreasing proportions are found in oil, coal product, mining, heat supply and gasoline vehicles (GVs) transport industries. Moreover all the commodity prices decrease since subsidies are given to some industries. Hence Toyohashi CityÂfs economy shows a direction where the demand for conventional vehicles and energy use are decreased, conversely, the demand for EVs and renewable energy are increased that displays different lifestyles from the current one. For all these reasons, it is our conclusion that EVS can really represent a realistic and alternative society both in terms of economic development and CO2 emissions reduction. In this study therefore it is clear that modal shift will occur to EVS, and thus we suggest for promotion of a new industrial structure to introduce an EVS in Toyohashi City in Japan. The proposed model can even be applied to the other cities in Japan and other countries in the world which are similar to this area.
    Keywords: electric vehicle; CGE; Toyohashi; R13; O18
    Date: 2014–11
  7. By: Heinrich Bohlmann (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa.); Petor Dixon (Centre of Policy Studies and Impact Project (COPS) Victoria University, Melbourne, Australia.); Maureen Rimmer (Centre of Policy Studies and Impact Project (COPS) Victoria University, Melbourne, Australia.); Jan Van Heerden (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa.)
    Abstract: In this paper we measure the economy-wide impact of the 2014 labour strike in South Africa’s platinum industry. The strike lasted five months, ending in June 2014 when producers reached an agreement with the main labour unions. The immediate impacts on local mining towns were particularly severe, but our research shows that the strike could also have long lasting negative impacts on the South African economy as a whole. We find that it is not the higher nominal wages itself that caused the most damage, but the possible reaction by investors in the mining industry towards South Africa. Investor con…dence is likely to be, at least, temporarily harmed, in which case it would take many years for the effects of the strike to disappear. We conduct our analysis using a dynamic CGE model of South Africa.
    Keywords: Platinum mining strike, computable general equilibrium,UPGEM
    JEL: C68 J52
    Date: 2014–11
  8. By: Valkonen, Tarmo; Kauppi, Eija; Suni, Paavo
    Abstract: This study simulates with two dynamic models the macroeconomic and public finance outcomes of a reduction in the corporate income tax rate in Finland. FOG-model is a dynamic CGE model, which is calibrated to the Finnish economy. NiGEM is a multi-country macroeconometric model. The results show that a surprising cut in the corporate income tax rate falls after all adjustments both on new investments and the yield of existing capital. The losses in the tax revenues are capitalized in the market value of the firms, of which many are partly foreign-owned. Investments increase, but the influence in production is mitigated by low reaction of labour supply. Wages increase as well as the public expenditure relates to wages. Gross profits do dot change much. The dynamic effects on tax bases compensate for 30–50 per cent of the losses in the corporate income tax revenues, depending on the model used. If also the increased public expenditure is considered, the compensation rate falls to 25–30 percent. If the tax rate cut is announced well in advance, both the macroeconomic and the public finance results are more favourable. The simulations do not consider the positive effects of profit shifting on corporate income tax revenues.
    Keywords: Corporate and capital income taxation, dynamic effects, CGE model, macroeconometric model
    JEL: H22 H25 C54 C68
    Date: 2014–12–11
  9. By: Vijay P. Ojha (Centre for International Trade and Development,Jawaharlal Nehru University); Joydeep Ghosh (International Food Policy Research Institute)
    Abstract: With a view to define a balance in the allocation of public expenditure across secondary education and higher education, we compare, in this paper, the relative contributions of public expenditures on secondary and higher education to growth as well as equity, employing a computable general equilibrium (CGE) model of India. Our policy simulations show that reducing allocations for secondary education and correspondingly increasing allocations of public education expenditure for higher education, produce monotonically decreasing growth and equity outcomes, if expansion of higher education does not foster technological progress. On the other hand, if higher education is well integrated with technological innovation, the former can become a powerful engine of inclusive growth. However, the growth and equity outcomes are not monotonically increasing with respect to expenditures on higher education when the latter is closely linked with technological innovation. Further, when higher education is a facilitator of technological innovation, the optimal allocation proportion for higher education in public educational spending is most likely to be within the range 40%-50%. Length: 38 pages
    Date: 2014
  10. By: Kleijnen, Jack P.C. (Tilburg University, Center For Economic Research); Mehdad, E. (Tilburg University, Center For Economic Research)
    Abstract: Abstract: To analyze the input/output behavior of simulation models with multiple responses, we may apply either univariate or multivariate Kriging (Gaussian process) metamodels. In multivariate Kriging we face a major problem: the covariance matrix of all responses should remain positive-de nite; we therefore use the recently proposed "non-separable dependence" model. To evaluate the performance of univariate and multivariate Kriging, we perform several Monte Carlo experiments that simulate Gaussian processes. These Monte Carlo results suggest that the simpler univariate Kriging gives smaller mean square error.
    Keywords: Simulation; Stochastic processes; Multivariate statistics
    JEL: C0 C1 C9 C15 C44
    Date: 2014
  11. By: Giovanni Dosi; Mauro Napoletano; Andrea Roventini; Tania Treibich
    Abstract: In this work we analyze the short- and long-run effects of fiscal austerity policies, employing an agent-based model populated by heterogeneous, boundedly-rational firms and banks. The model, in line with the family of "Keynes+Schumpeter" formalism, is able to account for a wide array of macro and micro empirical regularities. In particular, it endogenously generates self-sustained growth patterns together with persistent economic fluctuations punctuated by deep downturns. On the policy side, we find that austerity policies considerably harm the economy, by increasing output volatility, unemployment, and the incidence of crises. In addition, they depress innovation and the diffusion of new technologies, thus reducing long-run productivity and GDP growth. Finally, we show that "discipline-guided" fiscal rules are self-defeating, as they do not stabilize public finances, but, on the contrary, they disrupt them.
    Keywords: agent-based model, fiscal policy, economic crises, austerity policies, disequilibrium dynamics
    Date: 2014–11–25
  12. By: Miha Troha; Raphael Hauser
    Abstract: In this paper we propose a quadratic programming model that can be used for calculating the term structure of electricity prices while explicitly modeling startup costs of power plants. In contrast to other approaches presented in the literature, we incorporate the startup costs in a mathematically rigorous manner without relying on ad hoc heuristics. Moreover, we propose a tractable approach for estimating the startup costs of power plants based on their historical production. Through numerical simulations applied to the entire UK power grid, we demonstrate that the inclusion of startup costs is necessary for the modeling of electricity prices in realistic power systems. Numerical results show that startup costs make electricity prices very spiky. In the second part of the paper, we extend the initial model by including the grid operator who is responsible for managing the grid. Numerical simulations demonstrate that robust decision making of the grid operator can significantly decrease the number and severity of spikes in the electricity price and improve the reliability of the power grid.
    Date: 2014–11
  13. By: Zoi Vrontisi (JRC IPTS , European Commission); Jan Abrell (ETH Zurich); Frederik Neuwahl (DG ENV, European Commission); Bert Saveyn (JRC IPTS, European Commission; JRC IPTS , European Commission); Fabian Wagner (IIASA)
    Abstract: In March 2014 the UN World Health Organization (World Health Organization, 2014), released a study reporting that in 2012 one in eight of global deaths were a result of air pollution exposure. As part of a long-term effort, in late 2013, the European Commission (EC) adopted the "The Clean Air Policy Package", where it proposes new air pollution reduction objectives for the period up to 2030, as well as instruments to deliver those objectives. This paper explains in detail the modelling conducted with a Computable General Equilibrium model, GEM-E3, for the EC Impact Assessment of this recent EU policy proposal along with an additional analysis of the benefits deriving from the proposed policies. We show that the expenditure on pollution abatement represents a cost for the abating sectors but also that the expenditure in abatement technologies is an economic opportunity for the sectors that produce these technologies.  Moreover, we find that the inclusion of benefits in our analysis, especially those related to health, can offset the resource costs and yield overall marginally positive macro-economic impacts on the European economy.
    Keywords: The Clean Air Policy Package, environmental policy, health, general equilibrium
    JEL: Q53 Q58 C68 H51
    Date: 2014–12
  14. By: Krug, Sebastian; Lengnick, Matthias; Wohltmann, Hans-Werner
    Abstract: The Basel III accord reacts to the events of the recent financial crisis with a combination of revised micro- and new macroprudential regulatory instruments to address various dimensions of systemic risk. This approach of cumulating requirements bears the risk of individual measures negating or even conflicting with each other which might lessen their desired effects on financial stability. We provide an analysis of the impact of Basel III's main components on financial stability in a stock-flow consistent (SFC) agent-based computational economic (ACE) model. We find that the positive joint impact of the microprudential instruments is considerably larger than the sum of the individual contributions to stability, i.e. the standalone impacts are non-additive. However, except for the buffers, the macroprudential overlay's impact is either marginal or even destabilizing. Despite its simplicity, the leverage ratio performs poorly especially when associated drawbacks are explicitly taken into account. Surcharges on SIBs seem to rather contribute to financial regulations complexity than to the resilience of the system.
    Keywords: Banking Supervision,Basel III,Liquidity Coverage Ratio,Macroprudential Regulation,Financial Instability,Agent-based Computational Economics
    JEL: G01 G28 E40 C63
    Date: 2014
  15. By: Christophe Heyndrickx; Victoria Alexeeva-Taleebi; Natalia Tourdyeva
    Abstract: One of grand challenges which are faced by Russia today is to deregulate its gas market while favouring longer-term growth of economy. Since the 1990s, several proposals for structural reforms of Russian gas industry have been intensively debated, including the split-up of Gazprom. From the mid-2000s onwards, the key component of the reforms has become the introduction of a new pricing scheme for natural gas supply at the domestic markets. This is claimed to fit in a policy promoting energy efficiency, increasing investments in natural gas production and bringing the natural gas price on the domestic market closer to long term cost recovery. Underpricing of natural gas at the domestic markets was an explicit feature of the Soviet era, aimed at stimulating industrial growth. In the post-Soviet period, domestic gas prices were kept at relatively low levels to back up economic recovery, though this strategy had become increasingly untenable by 2006 in the light of Gazprom's investment needs into new extraction fields. A number of studies supported an upward price correction as a prerequisite for any structural reforms of Russian gas industry. Price increases on domestic market have been considered as a remedy to overcome the risk of a shortage in Russian gas sector. Since then domestic gas prices have been following a steady upward trend. The average regulated gas prices for both industrial consumers and private households have more than doubled from 2006 to 2011 . Nonetheless, today Russian consumers pay one third of the gas price charged abroad.. The growing momentum for gas price liberalization in Russia is increasingly constrained by fears of potentially strong adverse impact that market-based price setting principle will have on the economy. Based on a novel multi-regional, multi-sector and multi-household computable general equilibrium (CGE) model of the Russian Federation, this paper presents a simple yet a flexible framework for evaluating gas price reform. We found that the reform is feasible at low economic cost, without greater disparities in terms of increased inequity within and between country's federal districts. Large redistributive impacts can arise from specific mechanisms to recycle revenues. In terms of global environmental credentials, gas price liberalization can bring Russia on a substantially more sustainable path. The potential to foster adoption of energy efficiency measures by exploiting the revenue-recycling effect is, however, limited.
    Keywords: Regional general equilibrium model; sustainable development; natural gas pricing; Russia
    JEL: D58 H21 H22 Q48
    Date: 2014–11
  16. By: Roberta Capello; Andrea Caragliu
    Abstract: Over the last few years, the world economy has gone through a severe period of economic downturn, the worst since the end of WWII. Although the crisis has been widely covered on the media, less common knowledge is the fact that the crisis has engendered responses in the economic systems, in the form of structural adjustments. The aim of the present paper is to build after-crisis scenarios in order to raise awareness on the possible ways out of the present economic downturn. The scenarios that will be presented in the paper are "response to the crisis scenarios", in that built on the basis of alternative trends that structural adjustments can follow. In particular, the paper presents a reference scenario, whereby the first structural changes that have been caused by the crisis, as well as the early structural reactions that can be already observed in the data, are modeled. This scenario represents the benchmark against which the two alternative scenarios, based on assuming radically different trends in the evolution of the responses to the crisis, will be compared. In particular, a first scenario is the so called regional cohesion scenario, a scenario of competitiveness obtained thanks to the exploitation of local excellence and untapped local resources. In this scenario, economic resources, in particular innovation-related and FDI-driven, are assumed to be distributed more evenly with respect to the reference scenario, thus shifting towards areas hosting second-rank cities. The second alternative scenario is a social cohesion scenario, built around the idea of limiting social costs of the crisis. In this second alternative scenario, resources are assumed to be distributed differently with respect to both the reference and the regional cohesion scenario, and in particular to be oriented towards less urbanized areas. Both scenarios have positive and shareable reasons to be developed, and have therefore the same legitimization to be supported by policy-makers. In other words, neither is to be considered ex-ante preferable, and both can be justified on the basis of different policy targets. The results of the simulation exercise, obtained by running the macroeconomic regional growth forecasting model MASST3, are rather interesting. Unexpectedly, the regional cohesion scenario achieves both the highest aggregate growth rates, as well as the lowest increase in regional disparities. Contrary to general beliefs, the social cohesion scenario displays less effectiveness in fostering convergence processes. These results may drive future cohesion policies to reinforce local excellence and tap the untapped resources.
    Keywords: Economic way out of the crisis; simulation; regional growth; quantitative foresight (and)
    JEL: R11 R15
    Date: 2014–11
  17. By: Arndt, Channing; Jones, Sam; Tarp, Finn
    Abstract: Does foreign aid promote aggregate economic growth? In contrast to widespread perceptions, academic studies of this question have been rapidly converging towards a positive answer. We employ a simulation approach to (i) validate the coherence of recent em
    Keywords: foreign aid, rate of return, heterogeneity, simulation
    Date: 2014

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