nep-cmp New Economics Papers
on Computational Economics
Issue of 2014‒12‒29
thirteen papers chosen by

  1. An ex ante evaluation of the Revenu de Solidarité Active by micro-macro simulation techniques By Luciano Canova; Luca Piccoli; Amedeo Spadaro
  2. CGE Assessment of Tourism Policies in Turkey By K.Ali Akkemik; Erisa Dautaj Şenerdem
  3. "Endogenous Gridpoints in Multiple Dimensions: Interpolation on Non-Linear Grids" By Matthew N. White
  4. Micro and macro policies in the Keynes + Schumpeter evolutionary models By Giovanni Dosi; Mauro Napoletano; Andrea Roventini; Tania Treibich
  5. Gas Storage valuation with regime switching By Nicole B\"auerle; Viola Riess
  6. Variance reduced multilevel path simulation: going beyond the complexity $\varepsilon^{-2}$ By Denis Belomestny; Tigran Nagapetyan
  7. The evolution of the developers' industry and city structure Simulation using an Agent Based Model By Jonatan Almagor; Itzhak Benenson; Daniel Czamanski
  8. Evaluation of Credit Risk Under Correlated Defaults: The Cross-Entropy Simulation Approach By Loretta Mastroeni; Giuseppe D'Acquisto; Maurizio Naldi
  9. An Evolutionary Optimization Approach to Risk Parity Portfolio Selection By Ronald Hochreiter
  10. Compromises and Incentives By Sonia Di Giannatale Menegalli; Itza T. Q. Curiel-Cabral
  11. Cohesion Policy and Inequality Dynamics: Insights from a Heterogeneous Agents Macroeconomic Model By Herbert Dawid; Philipp Harting; Michael Neugart
  12. Understanding the dynamics of violent political revolutions in an agent-based framework By Alessandro Moro
  13. Adverse Selection, Risk Sharing and Business Cycles By Veracierto, Marcelo

  1. By: Luciano Canova (Enrico Mattei School); Luca Piccoli (Universitat de les Illes Balears); Amedeo Spadaro (Universitat de les Illes Balears)
    Abstract: This paper aims to investigate the effects of the introduction of an active welfare state measure, the Revenu de Solidarité Active (RSA), in France. The RSA replaced the old system of social minima, comprised by RMI and API. By using a micro-macro simulation model we characterize the effects on households’ disposable income, labour supply, wages, GDP, deficit, and other micro and macroeconomic aspects. We find that, although increasing public expenditure, RSA largely repays its cost by reducing involuntary unemployment, increasing labour supply and private consumption, and thus improving GDP and the deficit/GDP ratio. Poverty and inequality are also reduced significantly.
    Keywords: revenue de Solidarité active, RSA, active welfare state, microsimulation, CGE, micro-macro, labour supply, policy evaluation
    JEL: I38 C63 C68 J22 H31
    Date: 2014
  2. By: K.Ali Akkemik; Erisa Dautaj Şenerdem
    Abstract: Turkey is among top ten countries in the world tourism market in terms of international tourist arrivals and international tourism revenues. Tourism sector has grown rapidly over the last three decades and emerged as an important foreign exchange earner. It is argued that tourism creates opportunities for employment and contributes to economic growth and international tourism revenues compensate part of the current account deficit, which has traditionally been a major source of structural problems in Turkey. Tourism policies, therefore, may have important implications at the macro level. Recently the government published a strategy paper for tourism titled "Tourism Strategy of Turkey - 2023". In this study, we critically analyze the tourism strategy of Turkey using a dynamic applied computable general equilibrium (CGE) model. The model is a multi-sector, multi-country CGE model based on the GTAP model. The model includes 14 sectors and 12 regions. The sectoral disaggregation of the model emphasizes tourism-related activities. We use the GTAP database and run policy simulations to assess alternative tourism strategies as well as the potential impacts of exogenous shocks. The results bear important policy implications for the economy. .
    JEL: C68 L83
    Date: 2014–11
  3. By: Matthew N. White (Department of Economics, University of Delaware)
    Abstract: In dynamic optimization problems with multiple continuous state variables and multiple continuous controls, the method of endogenous gridpoints (ENDG) generates an irregular collection of gridpoints for which standard interpolation techniques do not apply, while alternative interpolation methods are extremely slow. This paper presents an interpolation technique that allows ENDG to be used in multi-dimensional problems in an intuitive and computationally e?cient way. The method translates irregular grid sectors onto the unit square (unit cube, unit hypercube, etc) and then applies standard linear interpolation. This method’s superiority to traditional solution approaches, in terms of speed and accuracy, is demonstrated on a benchmark model. At commonly used grid densities, the method of endogenous gridpoints with non-linear grid interpolation is 7.7 times faster than the traditional solution method, with slightly greater accuracy. This computational acceleration erodes only very slowly as grid density increases, unlike with alternative interpolation methods.
    Keywords: Dynamic models, numerical solution, endogenous gridpoint method, non-linear grid interpolation, endogenous human capital
    JEL: C61 C63 E21
    Date: 2014
  4. By: Giovanni Dosi (Laboratory of Economics and Management); Mauro Napoletano (OFCE); Andrea Roventini (Department of economics); Tania Treibich (Maastricht University)
    Abstract: This paper presents the family of the Keynes+Schumpeter (K+S, cf. Dosi et al, 2010, 2013, 2014) evolutionary agent-based models, which study the effects of a rich ensemble of innovation, industrial dynamics and macroeconomic policies on the long-term growth and short-run fluctuations of the economy. The K+S models embed the Schumpeterian growth paradigm into a complex system of imperfect coordination among heterogeneous interacting firms and banks, where Keynesian (demand-related) and Minskian (credit cycle) elements feed back into the meso and macro dynamics. The model is able to endogenously generate long-run growth together with business cycles and major crises. Moreover, it reproduces a long list of macroeconomic and microeconomic stylized facts. Here, we discuss a series of experiments on the role of policies affecting i) innovation, ii) industry dynamics, iii) demand and iv) income distribution. Our results suggest the presence of strong complementarities between Schumpeterian (technological) and Keynesian (demand-related) policies in ensuring that the economic system follows a path of sustained stable growth and employment
    Keywords: agent-based model; Fiscal policy; Economic crises; Austerity policies; Disequilibrium dynamics
    JEL: C63 E32 E52 G21 O4 E6
    Date: 2014–11
  5. By: Nicole B\"auerle; Viola Riess
    Abstract: In this paper we treat a gas storage valuation problem as a Markov Decision Process. As opposed to existing literature we model the gas price process as a regime-switching model. Such a model has shown to fit market data quite well in Chen and Forsyth (2010). Before we apply a numerical algorithm to solve the problem, we first identify the structure of the optimal injection and withdraw policy. This part extends results in Secomandi (2010). Knowing the structure reduces the complexity of the involved recursion in the algorithms by one variable. We explain the usage and implementation of two algorithms: A Multinomial-Tree Algorithm and a Least-Square Monte Carlo Algorithm. Both algorithms are shown to work for the regime-switching extension. In a numerical study we compare these two algorithms.
    Date: 2014–12
  6. By: Denis Belomestny; Tigran Nagapetyan
    Abstract: In this paper a novel modification of the multilevel Monte Carlo approach, allowing for further significant complexity reduction, is proposed. The idea of the modification is to use the method of control variates to reduce variance at level zero. We show that, under a proper choice of control variates, one can reduce the complexity order of the modified MLMC algorithm down to $\varepsilon^{-2+\delta}$ for any $\delta\in [0,1)$ with $\varepsilon$ being the precision to be achieved. These theoretical results are illustrated by several numerical examples.
    Date: 2014–12
  7. By: Jonatan Almagor; Itzhak Benenson; Daniel Czamanski
    Abstract: The paper presents agent-based model and simulations of the evolution of land developers' industry in a city regulated by a land use plan. We start with developers who are homogeneous in terms of wealth and simulate their economic growth as they make investments in lands and accumulate profits from construction. Over time some developers accumulate wealth enabling them to make investments and to take risks. We demonstrate that the introduction of advantage to size in purchasing parcels of land for future development and obtaining construction permits create a positive feed-back effects that increases the divergence between big and small developers. The interaction between developers' decisions regarding the location of land purchases and planner's approvals of piecemeal construction permits and comprehensive updates of zoning result in bifurcations of city structure that occur at times of plan modification and leads to a polycentric city.
    Keywords: Developers' Industry; Agent Based Model; Urban development; Urban modeling
    Date: 2014–11
  8. By: Loretta Mastroeni; Giuseppe D'Acquisto; Maurizio Naldi
    Abstract: Credit risk, associated to borrowers defaulting on their debts, is an ever growing source of concern for lenders. The presence of correlation among defaults may be described by the t-copula model. However, the typically large number of variables involved calls for a simulation approach. A simulation method, based on the use of the Cross-Entropy (CE) technique, is here proposed as an alternative to non-adaptive Importance Sampling (IS) techniques so far presented in the literature, the main advantage of CE being that it allows to deal easily with a wider range of probability models than ad hoc IS. The method is validated through a comparison of its results with the crude MonteCarlo and the Exponential Twist approaches. The proposed Cross-Entropy technique is shown to provide accurate results even when the sample size is several orders of magnitude smaller than the inverse of the probability to be estimated.
    Keywords: Credit risk, Cross-Entropy, Copula models
    JEL: C15 G32
    Date: 2014–09
  9. By: Ronald Hochreiter
    Abstract: In this paper we present an evolutionary optimization approach to solve the risk parity portfolio selection problem. While there exist convex optimization approaches to solve this problem when long-only portfolios are considered, the optimization problem becomes non-trivial in the long-short case. To solve this problem, we propose a genetic algorithm as well as a local search heuristic. This algorithmic framework is able to compute solutions successfully. Numerical results using real-world data substantiate the practicability of the approach presented in this paper.
    Date: 2014–11
  10. By: Sonia Di Giannatale Menegalli (Division of Economics, CIDE); Itza T. Q. Curiel-Cabral
    Abstract: We analyze a situation where a Principal does not necessarily have all the bargaining power while negotiating a contract with an Agent by studying a dynamic multi-objective moral hazard model with hidden action. We .nd that the structure of the optimal contracts change along the Pareto Frontier, and that compromise solutions implement higher Agent.s e¤ort levels when compared to contracts located at the Pareto Frontier.s extremes. Our numerical results indicate that in compromise solutions, compared to the contracts located at the Pareto Frontier.s extremes, the Agent exerts higher e¤ort levels, the Agent.s future compensation schedules show higher spread, and the Agent.s salaries become more directly related to productivity outcomes as time goes on. When the coe¢ cient of relative risk aversion increases, compromise solutions tend to become closer to the Agent.s most advan-tageous contract. Improvements in the .rm.s productivity environment bene.t, in relative terms, the Agent more than the Principal when compromise solutions are implemented.
    Keywords: Asymmetric information, Principal-Agent Model, Incentives, Pareto Frontier, Compromise Solutions, Multi-Objective Problems, Evolutionary Algorithms
    JEL: C63 C78 D61 D82 D86 L14
    Date: 2013–09
  11. By: Herbert Dawid (Department of Business Administration and Economics and Institute of Mathematical Economics, Bielefeld University, Germany); Philipp Harting (Department of Business Administration and Economics, Bielefeld University, Germany); Michael Neugart (Department of Law and Economics, Technical University of Darmstadt, Germany)
    Abstract: Regions within the European Union differ substantially not only with respect to per capita GDP, but also with respect to income inequality within the regions. This paper studies the effects of different types of technology-oriented cohesion policies, aiming at the reduction of regional differences, on the convergence of regions and the dynamics of income inequality within regions. In particular, policies are analyzed using a two-region agent-based macroeconomic model – the Eurace@Unibi model – where firms in the lagging region receive subsidies for investment in physical capital. It is demonstrated that the short-, medium- and long-term effects of the policies on per-capita output and between as well as within regional inequality differ substantially depending on how successful the policy is in incentivizing firms to choose best available capital vintages and on how flexible labor markets are in the targeted region.
    Keywords: cohesion policies, technology adoption, agent-based model, inequality
    JEL: C63 O33
    Date: 2014–04
  12. By: Alessandro Moro (Department of Economics, University Of Venice Cà Foscari)
    Abstract: This paper develops an agent-based computational model of violent political revolution in which a subjugated population of agents and an armed revolutionary organization try to overthrow a central authority and its loyal forces. The model replicates several patterns of rebellion consistent with the major historical revolutions and provides an explanation for the multiplicity of outcomes that can arise from an uprising. This last point is of particular interest if we consider the heterogeneity of political outcomes produced by the recent revolutionary episodes in the so-called Arab Spring.
    Keywords: Political Revolutions, Arab Spring, Agent-Based Models
    JEL: C63 D74
    Date: 2014
  13. By: Veracierto, Marcelo (Federal Reserve Bank of Chicago)
    Abstract: I consider a real business cycle model in which agents have private information about an idiosyncratic shock to their value of leisure. I consider the mechanism design problem for this economy and describe a computational method to solve it. This is an important contribution of the paper since the method could be used to solve a wide class of models with heterogeneous agents and aggregate uncertainty. Calibrating the model to U.S. data I find a striking result: That the information frictions that plague the economy have no effects on business cycle fluctuations.
    Keywords: Adverse selection; risk sharing; business cycles; private information; incentives; optimal contracts; computational methods; heterogeneous agents
    JEL: C63 C68 D31 D82 E32
    Date: 2014–10–22

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