nep-cmp New Economics Papers
on Computational Economics
Issue of 2016‒01‒03
thirteen papers chosen by
Stan Miles
Thompson Rivers University

  1. We could not care less about Armington elasticities - but should we? A meta-sensitivity analysis of the influence of Armington elasticity misspecification on simulation results By Schürenberg-Frosch, Hannah
  2. A CGE model with ICT and R&D-driven endogenous growth: A general description By Martin Aarøe Christensen
  3. Exact Present Solution with Consistent Future Approximation: A Gridless Algorithm to Solve Stochastic Dynamic Models By Den Haan, Wouter; Kobielarz, Michal L.; Rendahl, Pontus
  4. Social Network Analysis and Community Detection by Decomposing a Graph into Relaxed Cliques By Timo Gschwind; Stefan Irnich; Fabio Furini; Roberto Wol?er Calvo
  5. Liability-side Pricing of Swaps and Coherent CVA and FVA by Regression/Simulation By Wujiang Lou
  6. An Extended N-player Network Game and Simulation of Four Investment Strategies on a Complex Innovation Network By Zhou, Wen; Koptyug, Nikita; Ye, Shutao; Jia, Yifan; Lu, Xiaolong
  7. A CGE model with ICT and R&D-driven endogenous growth: A detailed model description By Martin Aarøe Christensen
  8. Energy Efficiency Priority for Indonesia: A General Equilibrium Analysis By Arief Anshory Yusuf
  9. Debt stabilization and macroeconomic volatility in monetary unions under heterogeneous sovereign risk perceptions By Proaño, Christian R.; Lojak, Benjamin
  10. A Cross-Entropy approach to the estimation of Generalised Linear Multilevel Models By Marco Bee; Giuseppe Espa; Diego Giuliani; Flavio Santi
  11. Hedging of covered options with linear market impact and gamma constraint By B Bouchard; G Loeper; Y Zou
  12. Predicting the Irish "Gay Marriage" Referendum By Askitas, Nikos
  13. Calling the Greek Referendum on the Nose with Google Trends By Askitas, Nikos

  1. By: Schürenberg-Frosch, Hannah
    Abstract: This paper investigates the robustness of CGE models with respect to the elasticities of substitution in demand between domestically produced goods and foreign goods - the so-called Armington elasticities. The Armington-type modeling of trade is still one of the most extensively used specifications in CGE modeling. For a long time the choice of the respective elasticities of substitution has not been given much attention. We resimulate 50 published CGE policy simulations each a 1000 times and randomize the elasticities. The results of this experiment clearly indicate that a change in the elasticities has noteworthy quantitative and qualitative effects on the results in more than half of the models. We thus conclude that the choice of the elasticities should get more attention and robustness of models with respect to elasticities should be tested by modellers.
    Abstract: Berechenbare allgemeine Gleichgewichtsmodelle (CGE, engl. Computable General Equilibrium) sind seit langem in den Bereichen Handelspolitik, Ökonomie des Klimawandels, Entwicklungspolitik und Steuerpolitik ein fester Bestandteil der angewandten Volkswirtschaftslehre, insbesondere in der Politikberatung. Die Modelle eignen sich ausgezeichnet zur Politikfolgenabschätzung, da sie eine ex ante Abschätzung der Folgen z.B. einer Politikmaßnahme zu simulieren. Der größte regelmäßige Kritikpunkt gegenüber CGE-Modellen ist die Abhängigkeit der Ergebnisse von per Annahme festgelegten Parametern, über deren wahre Werte Unsicherheit besteht. Einer der hiervon betroffenen Kernparameter sind die sog. Handels- bzw. Armingtonelastizitäten. Aufgrund des hohen Aufwands empirischer Schätzungen sowie der generell schlechten Datenverfügbarkeit werden die Elastizitäten für die meisten CGE-Anwendungen nicht aus realen Landesdaten gewonnen, sondern unverändert aus anderen Studien übernommen. Die vorliegende Meta-Studie untersucht und bestätigt die Relevanz dieses Kritikpunktes. Hierzu werden 50 Simulationen in 19 Modellen aus bereits veröffentlichten Studien jeweils 1000 Mal re-simuliert und dabei (ausschließlich) die Elastizitätensätze randomisiert ausgetauscht. Das Intervall für die Bestimmung der Elastizitäten wird durch alle der Autorin bekannten Elastizitätenschätzungen vorgegeben, es umfasst alle Werte zwischen 0 und 18. Die Studie kommt zu dem eindeutigen Ergebnis, dass etwa die Hälfte der Modelle nicht robust im Bezug auf die Wahl der genutzten Elastizitäten ist. Konkret ergibt die 1000-fache randomisierte Ziehung der Elastizitäten und anschließende Re-Simulation des Original-Experiments im jeweiligen Modell z.T. quantitative Abweichungen bei der Wohlfahrts- und BIP-Bewertung von über 100% und in etwa 25% der Modelle auch qualitative Änderungen, so dass als wohlfahrtsfördernd eingestufte Politiken mit neuem Elastizitätensatz wohlfahrtshemmend wirken und umgekehrt.
    Keywords: Armington,trade elasticities,computable general equilibrium,meta-study
    JEL: F14 C68 F17
    Date: 2015
    URL: http://d.repec.org/n?u=RePEc:zbw:rwirep:594&r=cmp
  2. By: Martin Aarøe Christensen (European Commission – JRC - IPTS)
    Abstract: This report describes the first release of the macroeconomic model developed under the project Prospective Insights on R&D in ICT (PREDICT 2), a research project co-financed by the Directorate General for Communications Networks, Content and Technology and the JRC-IPTS. One of the objectives of PREDICT 2 is the development of a macroeconomic model which allows the economic analysis of scenarios related to ICT R&D funding policies in the European Union. This report provides a motivation for the chosen modelling approach, describes the model structure and the calibration of the model to a reference growth path.
    Keywords: Economic Modelling, R&D, ICT, Endogenous Growth
    JEL: C68 O30 H20
    Date: 2015–12
    URL: http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc97902&r=cmp
  3. By: Den Haan, Wouter; Kobielarz, Michal L.; Rendahl, Pontus
    Abstract: This paper proposes an algorithm that finds model solutions at a particular point in the state space by solving a simple system of equations. The key step is to characterize future behavior with a Taylor series expansion of the current period's behavior around the contemporaneous values for the state variables. Since current decisions are solved from the original model equations, the solution incorporates nonlinearities and uncertainty. The algorithm is used to solve the model considered in Coeurdacier, Rey, and Winant (2011), which is a challenging model because it has no steady state and uncertainty is necessary to keep the model well behaved. We show that our algorithm can generate accurate solutions even when the model series are quite volatile. The solutions generated by the risky-steady-state algorithm proposed in Coeurdacier, Rey, and Winant (2011), in contrast, is shown to be not accurate.
    Keywords: risky steady state; solution methods
    JEL: C63 E10 E23 F41
    Date: 2015–12
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:10999&r=cmp
  4. By: Timo Gschwind (Johannes Gutenberg University Mainz); Stefan Irnich (Johannes Gutenberg University Mainz); Fabio Furini (Université Paris Dauphine); Roberto Wol?er Calvo (Universit´e de Paris Nord)
    Abstract: In social network analysis (SNA), relationships between members of a network are encoded in an undirected graph where vertices represent the members of the network and edges indicate the existence of a relationship. One important task in SNA is community detection, that is, clustering the members into communities such that relatively few edges are in the cutsets but relatively many are internal edges. The clustering is intended to reveal hidden or reproduce known features of the network, while the structure of communities is arbitrary. We propose decomposing a graph into the minimum number of relaxed cliques as a new method for community detection especially conceived for cases in which the internal structure of the community is important. Cliques, that is, subgraphs with pairwise connected vertices, can model perfectly cohesive communities, but often they are overly restrictive because many real communities form dense but not complete subgraphs. Therefore, different variants of relaxed cliques have been de?ned in terms of vertex degree and distance, edge density, and connectivity. They allow to impose application-speci?c constraints a community has to ful?ll such as familiarity and reachability among members and robustness of the communities. Standard compact formulations fail in ?nding optimal solutions even for small instances of such decomposition problems. Hence, we develop exact algorithms based on Dantzig-Wolfe reformulation and branch-and-price techniques. Extensive computational results demonstrate the e?ectiveness of all components of the algorithms and the validity of our approach when applied to social network instances from the literature.
    Keywords: Graph decomposition, community detection, clique relaxations, social network analysis, branch-and-price
    Date: 2015–12–11
    URL: http://d.repec.org/n?u=RePEc:jgu:wpaper:1520&r=cmp
  5. By: Wujiang Lou
    Abstract: An uncollateralized swap hedged back-to-back by a CCP swap is used to introduce FVA. The open IR01 of FVA, however, is a sure sign of risk not being fully hedged, a theoretical no-arbitrage pricing concern, and a bait to lure market risk capital, a practical business concern. By dynamically trading the CCP swap, with the liability-side counterparty provides counterparty exposure hedge and swap funding, we find that the uncollateralized swap can be fully replicated, leaving out no IR01 leakage. The fair value of the swap is obtained by applying to swap's net cash flows a discount rate switching to counterparty's bond curve if the swap is a local asset or one's own curve if a liability, and the total valuation adjustment is the present value of cost of funding the risk-free price discounted at the same switching rate. FVA is redefined as a liquidity or funding basis component of total valuation adjustment, coherent with CVA, the default risk component. A Longstaff-Schwartz style least-square regression and simulation is introduced to compute the recursive fair value and adjustments. A separately developed finite difference scheme is used to test and find regression necessary to decouple the discount rate switch. Preliminary results show the impact of counterparty risk to swap hedge ratios, swap bid/ask spreads, and valuation adjustments, and considerable errors of calculating CVA by discounting cash flow or potential future exposure.
    Date: 2015–12
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1512.07340&r=cmp
  6. By: Zhou, Wen (School of Computer Engineering and Science); Koptyug, Nikita (Research Institute of Industrial Economics (IFN)); Ye, Shutao (School of Computer Engineering and Science); Jia, Yifan (School of Computer Engineering and Science); Lu, Xiaolong (School of Computer Engineering and Science)
    Abstract: As computer science and complex network theory develop, non-cooperative games and their formation and application on complex networks have been important research topics. In the inter-firm innovation network, it is a typical game behavior for firms to invest in their alliance partners. Accounting for the possibility that firms can be resource constrained, this paper analyzes a coordination game using the Nash bargaining solution as allocation rules between firms in an inter-firm innovation network. We build an extended inter-firm n-player game based on nonidealized conditions, describe four investment strategies and simulate the strategies on an inter-firm innovation network in order to compare their performance. By analyzing the results of our experiments, we find that our proposed greedy strategy is the best-performing in most situations. We hope this study provides a theoretical insight into how firms make investment decisions.
    Keywords: Complex Networks; Game Theory; Innovation; Innovation Network; Nash Equilibrium
    JEL: C72 C81 C82 D81 L14
    Date: 2015–12–15
    URL: http://d.repec.org/n?u=RePEc:hhs:iuiwop:1097&r=cmp
  7. By: Martin Aarøe Christensen (European Commission – JRC - IPTS)
    Abstract: We present a multi-country, multi-sector dynamic general equilibrium model with ICT and R&D-driven endogenous growth. The model presented has been developed to study the economic effects of alternative ICT R&D funding policies in the European Union. It accommodates alternative policy instruments that could be used in an attempt to stimulate private ICT R&D expenditures, including general production grants, tax credit or subsidies targeted at specific inputs. The model is calibrated to data from four country blocs Germany, France, the Rest of the EU and the Rest of the World.
    Keywords: Economic Modelling, R&D, ICT, Endogenous Growth
    JEL: C68 O30 H20
    Date: 2015–12
    URL: http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc97908&r=cmp
  8. By: Arief Anshory Yusuf (Department of Economics, Padjadjaran University)
    Abstract: Climate change mitigation, through the means of energy efficiency improvement, requires all countries to play important roles. Developing countries are not the exception. However, in the context of developing countries, the benefit of energy efficiency improvement need to be measured against a broad range of development indicators. Using a general equlibrium model of the Indonesian economy, we simulate various different energy efficiency scenarios and compare its impact not only on the amount of emissions reduction, but also on other relevant development indicators such as employment creation, poverty incidence and income distribution. The result suggests that energy efficiency improvement which leave more resource available for output expansion is employment-generating, poverty-reducing and can have a favorable distributional implication. For Indonesia, improving fuel efficiency in public road transportation and improving energy efficiency of the energy-intensive manufacturing sector has come out as the key priority areas where energy efficiency strategy should focus on.
    Keywords: Energy efficiency, Computable General Equilibrium, Indonesia
    JEL: Q40
    Date: 2015–12
    URL: http://d.repec.org/n?u=RePEc:unp:wpaper:201506&r=cmp
  9. By: Proaño, Christian R.; Lojak, Benjamin
    Abstract: This paper studies the dynamics of sovereign risk, fiscal policy and the macroeconomy in a two-country monetary union framework under the assumption of a heterogeneous perception of the determinants of sovereign risk by the government and the market participants. The macroeconomic volatility resulting from various types of fiscal policy rules aimed at the stabilization of sovereign debt are investigated through numerical simulations. Among other things, these simulations show that an extreme focus on debt stabilization can be counterproductive if the financial markets care more about the country's output gap.
    Keywords: behavioral macroeconomics,sovereign risk,fiscal policy rules,monetary unions,macroeconomic stability
    Date: 2015
    URL: http://d.repec.org/n?u=RePEc:zbw:bamber:106&r=cmp
  10. By: Marco Bee; Giuseppe Espa; Diego Giuliani; Flavio Santi
    Abstract: In this paper we use the cross-entropy method for noisy optimisation for fitting generalised linear multilevel models through maximum likelihood. We propose specifications of the instrumental distributions for positive and bounded parameters that improve the computational performance. We also introduce a new stopping criterion, which has the advantage of being problem-independent. In a second step we find, by means of extensive Monte Carlo experiments, the most suitable values of the input parameters of the algorithm. Finally, we compare the method to benchmark estimation technique based on numerical integration. The cross-entropy approach turns out to be preferable from both the statistical and the computational point of view. In the last part of the paper, the method is used to model death probability of firms in the healthcare industry in Italy.
    Date: 2015
    URL: http://d.repec.org/n?u=RePEc:trn:utwprg:2015/04&r=cmp
  11. By: B Bouchard (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris IX - Paris Dauphine - CNRS - Centre National de la Recherche Scientifique); G Loeper (Monash University (AUSTRALIA) - Monash University (AUSTRALIA), FiQuant - Chaire de finance quantitative - Ecole Centrale Paris); Y Zou (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris IX - Paris Dauphine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Within a financial model with linear price impact, we study the problem of hedging a covered European option under gamma constraint. Using stochastic target and partial differential equation smoothing techniques, we prove that the super-replication price is the viscosity solution of a fully non-linear parabolic equation. As a by-product, we show how ε-optimal strategies can be constructed. Finally, a numerical resolution scheme is proposed.
    Keywords: Stochastic target ,Hedging, Price impact
    Date: 2015–12–22
    URL: http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01247523&r=cmp
  12. By: Askitas, Nikos (IZA)
    Abstract: On February 20 2015 Irish Premier Enda Kenny confirmed that a "yes-no" referendum on same sex marriage would be held on May 22 of the same year. A yes vote would legalise same sex marriage in Ireland. As the Irish premier put it, the vote was about "tolerance, respect and sensitivity". The electoral outcome turned out to be 62.07% for the yes vote with voter turnout at 60.52% of the registered voters. Ireland thus became the first country in the world to legalise same sex marriage through a popular vote. Using hourly Google Search data one week prior to the Irish Referendum of May 22 2015 and a simple ratio of "vote yes" to "vote no" searches I demonstrate how the outcome could have been predicted on the nose. The method is used here successfully for the second time and is so far as I know the only one which forecasts popular vote with Google Search.
    Keywords: referendum, predicting, Google Trends, Google Search, complexity, behaviour, data science, computational social science, complex systems
    JEL: D72 G34
    Date: 2015–12
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp9570&r=cmp
  13. By: Askitas, Nikos (IZA)
    Abstract: In a bold and risky political move the Greek prime minister Alexis Tsipras called for a referendum on June 27 2015 quitting ongoing negotiations with Greece's creditors in Brussels. The referendum framed as a yes or no question asked the Greek voters to decide whether or not they approve or reject the latest take-it-or-leave-it proposal for "program continuation" by Greece's creditors. What followed was a chaotic week leading to the referendum with intense campaigning by the two camps. Due to tense debates and increasing polarisation it became increasingly impossible to rely on traditional polling. Even the first exit polls (performed by phone on Sunday evening) could only see a marginal lead for one or the other vote at different times. Quite possibly people were jumping party lines and were unwilling to reveal their preferences. Using Google Trends I could tap into voters' true and unbiased revealed preferences and nowcast hourly what the ratio of the No vote to the Yes vote is and called an over 60% No vote well ahead of the closing of the voting urns. In this paper I document this nowcasting exercise.
    Keywords: nowcasting, Greek Referendum, greferendum, exit polls, complexity, behaviour, data science, computational social science, complex systems
    JEL: D72 G34
    Date: 2015–12
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp9569&r=cmp

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