nep-cmp New Economics Papers
on Computational Economics
Issue of 2016‒01‒29
nine papers chosen by
Stan Miles
Thompson Rivers University

  1. The Poverty Implications of Alternative Tax Reforms: Some Countries Intuitive Results In an Application to Pakistan By Andrew Feltenstein; Carolina Mejia
  2. Taming macroeconomic instability : monetary and macro prudential policy interactions in an agent-based model By Lilit Popoyan; Mauro Napoletano; Andrea Roventini
  3. Extended Abstract: Neural Networks for Limit Order Books By Justin Sirignano
  4. Systemic Risk Management in Financial Networks with Credit Default Swaps By Matt V. Leduc; Sebastian Poledna; Stefan Thurner
  5. Assessing the Social and Macroeconomic Impacts of Labour Market Integration: A Holistic Approach By Pavel Ciaian; d’Artis Kancs
  6. Wealth Concentration, Income Distribution, and Alternatives for the USA By Lance Taylor; Ozlem Omer; Armon Rezai
  7. Spatial Analysis of Viable Farms By Kilgarriff, Paul; O’Donoghue, Cathal; Grealis, Eoin; Farrell, Niall; Hynes, Stephen; Ryan, Mary; Dillion, Emma; Green, Stuart; Morrissey, Karyn; Hennessy, Thia; Donnellan, Trevor
  8. Speculative Futures Trading under Mean Reversion By Tim Leung; Jiao Li; Xin Li; Zheng Wang
  9. Exploring International Differences in Inflation Dynamics By Yamin Ahmad; Olena Mykhaylova

  1. By: Andrew Feltenstein (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University); Carolina Mejia (World Bank Author Name: David Newhouse; World Bank Author Workplace-Homepage: Author Name: Gohar Sedrakyan; International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University Author Workplace-Homepage:
    Abstract: This paper presents results from four simulations of the impact of potential tax reforms in Pakistan on poverty, shared prosperity, and inequality. The simulations are carried out in the context of a dynamic computational general equilibrium (CGE) model that incorporates endogenous evasion of the corporate income tax. The simulations are: a forward looking benchmark case, an increase in the corporate income tax from 35 to 45 percent, a rise in the General Sales Tax (GST) from 16 to 17 percent, and an increase in the tariff rate from 14 percent to 19 percent. The simulations link the CGE model to household survey data that is incorporated in a micro simulation model. This “top down” approach permits a disaggregated estimation of the poverty implications of alternative tax and tariff policies. The results indicate, counterintuitively, that the increase in the sales tax leads to milder average increases in poverty than an equal-yield corporate income tax, because the fall in capital investment resulting from the corporate tax increase lowers the marginal product of labor. The simulated tariff increase raises poverty slightly more than the sales tax increase and slightly less than the corporate tax increase. The difference in simulated poverty impacts is small, as the average headcount rate increases by half a percentage point more under the corporate income tax than the sales tax, confirming the limits of indirect taxation as a tool for redistributing income.
    Date: 2015–11
  2. By: Lilit Popoyan (Institute of Economics, (LEM)); Mauro Napoletano (OFCE Sciences Po and Skema Businnes School); Andrea Roventini (Institute of Economics, (LEM))
    Abstract: We develop an agent-based model to study the macroeconomic impact of alternative macroprudential regulations and their possible interactions with dierent monetary policy rules.The aim is to shed light on the most appropriate policy mix to achieve the resilience of the banking sector and foster macroeconomic stability. Simulation results show that a triple- mandate Taylor rule, focused on output gap, inflation and credit growth, and a Basel III prudential regulation is the best policy mix to improve the stability of the banking sector and smooth output fluctuations. Moreover, we consider the different levers of Basel III and their combinations. We find that minimum capital requirements and counter-cyclical capital buffers allow to achieve results close to the Basel III first-best with a much more simplifiedregulatory framework. Finally, the components of Basel III are non-additive: the inclusion of an additional lever does not always improve the performance of the macro prudential regulation
    Keywords: Macro-prudential policy, Basel III regulation, financial stability, monetary policy, agent-based computational economics.
    JEL: C63 E52 E6 G01 G21 G28
    Date: 2015–12
  3. By: Justin Sirignano
    Abstract: We design and test neural networks for modeling the dynamics of the limit order book. In addition to testing traditional neural networks originally designed for classification, we develop a new neural network architecture for modeling spatial distributions (i.e., distributions on $\mathbb{R}^d$) which takes advantage of local spatial structure. Model performance is tested on 140 S\&P 500 and NASDAQ-100 stocks. The neural networks are trained using information from deep into the limit order book (i.e., many levels beyond the best bid and best ask). Techniques from deep learning such as dropout are employed to improve performance. Due to the computational challenges associated with the large amount of data, the neural networks are trained using GPU clusters. The neural networks are shown to outperform simpler models such as the naive empirical model and logistic regression, and the new neural network for spatial distributions outperforms the standard neural network.
    Date: 2016–01
  4. By: Matt V. Leduc; Sebastian Poledna; Stefan Thurner
    Abstract: We study insolvency cascades in an interbank system when banks are allowed to insure their loans with credit default swaps (CDS) sold by other banks. We show that, by properly shifting financial exposures from one institution to another, a CDS market can be designed to rewire the network of interbank exposures in a way that makes it more resilient to insolvency cascades. A regulator can use information about the topology of the interbank network to devise a systemic insurance surcharge that is added to the CDS spread. CDS contracts are thus effectively penalized according to how much they contribute to increasing systemic risk. CDS contracts that decrease systemic risk remain untaxed. We simulate this regulated CDS market using an agent-based model (CRISIS macro-financial model) and we demonstrate that it leads to an interbank system that is more resilient to insolvency cascades.
    Date: 2016–01
  5. By: Pavel Ciaian (European Commission – JRC - IPTS); d’Artis Kancs (European Commission – JRC - IPTS)
    Abstract: In the age of globalisation and the knowledge economy, skill mobility is perceived as one of the key factors for fully unlocking the labour market potential. Assessing the social and macroeconomic impacts of increased skill mobility is an important though also challenging task, which requires a holistic approach. This study presents the dynamic spatial general equilibrium approach taken in the Regional Holistic Model (RHOMOLO) to better understand the relationship between education, skills, migration and economic growth. Two key channels of labour market adjustment -- upward skill mobility and spatial skill mobility -- are presented and explained in particular detail. By performing numerical simulations and conceptual analysis of labour market integration, we aim to facilitate understanding of the advantages and limitations of the approach taken in RHOMOLO, and its potential for education, skills and employment policy impact assessment. The results from our analysis suggest that a holistic approach is indeed crucial for capturing all the direct and indirect, short- and long-run effects, and it has a wide potential for assessing region-, sector- and skill-specific macroeconomic and social effects of policies aiming at integration e.g. of marginalised communities, such as Roma or refugees, into the EU labour markets.
    Keywords: Dynamic spatial general equilibrium model, skills, education, employment, labour, migration, wage, human capital.
    JEL: C68 D58 F22 J20 J61 J64 O15
    Date: 2015–12
  6. By: Lance Taylor; Ozlem Omer; Armon Rezai (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: US household wealth concentration is not likely to decline in response to fiscal interventions alone. Creation of an independent public wealth fund could lead to greater equality. Similarly, once-off tax/transfer packages or wage increases will not reduce income inequality significantly; ongoing wage increases in excess of productivity growth would be needed. These results come from the accounting in a simulation model based on national income and financial data. The theory behind the model borrows from ideas that originated in Cambridge UK (especially from Luigi Pasinetti and Richard Goodwin).
    Keywords: Wealth distribution, income distribution, Cambridge theory
    JEL: D31 D33 D58 B50
    Date: 2015–09
  7. By: Kilgarriff, Paul; O’Donoghue, Cathal; Grealis, Eoin; Farrell, Niall; Hynes, Stephen; Ryan, Mary; Dillion, Emma; Green, Stuart; Morrissey, Karyn; Hennessy, Thia; Donnellan, Trevor
    Abstract: An economically viable farm is defined as having the capacity to remunerate family labour at the average agricultural wage, together with a return of 5 per cent on non-land assets. There is however significant spatial heterogeneity among farms. In this paper we examine farm viability using a classification concept (Frawley and Commins, 1996). A spatial microsimulation approach is used to add a spatial component to a farm micro dataset. This dataset is then linked to a spatial micro dataset of households which allows for farm and nonfarm analyses within the same analysis. This dataset enables us to analyse the characteristics of the areas within which viable farms exist in addition to the farms themselves.
    Keywords: Agricultural and Food Policy,
    Date: 2015
  8. By: Tim Leung; Jiao Li; Xin Li; Zheng Wang
    Abstract: This paper studies the problem of trading futures with transaction costs when the underlying spot price is mean-reverting. Specifically, we model the spot dynamics by the Ornstein-Uhlenbeck (OU), Cox-Ingersoll-Ross (CIR), or exponential Ornstein-Uhlenbeck (XOU) model. The futures term structure is derived and its connection to futures price dynamics is examined. For each futures contract, we describe the evolution of the roll yield, and compute explicitly the expected roll yield. For the futures trading problem, we incorporate the investor's timing option to enter or exit the market, as well as a chooser option to long or short a futures upon entry. This leads us to formulate and solve the corresponding optimal double stopping problems to determine the optimal trading strategies. Numerical results are presented to illustrate the optimal entry and exit boundaries under different models. We find that the option to choose between a long or short position induces the investor to delay market entry, as compared to the case where the investor pre-commits to go either long or short.
    Date: 2016–01
  9. By: Yamin Ahmad (Department of Economics, University of Wisconsin-Whitewater); Olena Mykhaylova (Department of Economics, College of the Holy Cross)
    Abstract: Standard closed-economy DSGE models have difficulty replicating the persistence of inflation. We use a multicountry dataset to establish some empirical regularities on persistence and volatility of aggregate consumer prices for 161 countries. We find persistence to be high (low) on average for developed (developing) countries, while volatility is low (high) on average for the same country groupings. We then employ a two-country DSGE framework to investigate the extent to which structural open economy features, such as incomplete exchange rate pass-through, the existence of nontraded goods, and international financial market incompleteness, can help in replicating the persistence and volatility of consumer prices. Our simulation results indicate that nominal price inertia in both wholesale and retail sectors has the potential to reconcile both the persistence and volatility of simulated inflation series with the data. When we simulate inflation series in the version of the model calibrated to a developing-developed country pair by allowing for different price contract durations and export currency choices, we are able to replicate the empirical differences reported in the first part of the paper.
    Keywords: Inflation dynamics, persistence, volatility, DSGE modeling, simulations
    JEL: E31 F41 C22
    Date: 2015–09

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