nep-cmp New Economics Papers
on Computational Economics
Issue of 2016‒02‒04
fifteen papers chosen by
Stan Miles
Thompson Rivers University

  1. Taming macroeconomic instability: Monetary and macro prudential policy interactions in an agent-based model By Lilit Popoyan; Mauro Napoletano; Andrea Roventini
  2. Impact of inventory-based electronic liquidity providers within a high-frequency event- and agent-based modeling framework By Alexandru Mandes
  3. Agent-based simulation of competing sustainability enhancing strategies for the pork supply chain By Verwaart, Tim; Eva, van den Broek
  4. Using CGE modelling for Thailand’s policymaking in the context of regionalism and other trade policy options   By Wannaphong Durongkaveroj; Luca Parisotto
  5. The redistributive and stabilising effects of an EMU unemployment benefit scheme under different hypothetical unemployment scenarios By Jara Tamayo, Holguer Xavier; Tumino, Alberto; Sutherland, Holly
  6. How much is corporate cash-pooling worth? Modelling and simulation By Berlinger, Edina; Bihary, Zsolt; Walter, György
  7. Tax-benefit microsimulation in Ecuador: A feasibility study By H. Xavier Jara
  8. Solving OLG Models with Many Cohorts, Asset Choice and Large Shocks By Reiter, Michael
  9. On construction of positivity preserving numerical schemes By Nikolaos Halidias
  10. Tax-benefit microsimulation modelling in Tanzania By Vincent Leyaro; Elineema Kisanga; Gemma Wright; Helen Barnes; Michell Mpike
  11. Portfolio optimization under dynamic risk constraints By Imke H\"ofers; Ralf Wunderlich
  12. Micro-foundation using percolation theory of the finite-time singular behavior of the crash hazard rate in a class of rational expectation bubbles By Maximilian Seyrich; Didier Sornette
  13. Term-Structure Modelling at the Zero Lower Bound: Implications for Estimating the Term Premium By Tsz-Kin Chung; Cho-Hoi Hui; Ka-Fai Li
  14. Predicting Human Cooperation By John J. Nay; Yevgeniy Vorobeychik
  15. Eliciting the level of health inequality aversion in England By Matthew Robson; Miqdad Asaria; Richard Cookson; Aki Tsuchiya; Shehzad Ali

  1. By: Lilit Popoyan (Laboratory of Economics and Management (Pisa) (LEM)); Mauro Napoletano (OFCE); Andrea Roventini (Department of economics)
    Abstract: We develop an agent-based model to study the macroeconomic impact of alternative macro prudential regulations and their possible interactions with different 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 dfferent levers of Basel III andtheir 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 inclusionof an additional lever does not always improve the performance of the macro prudentialregulation
    Keywords: Macro prudential policy; Basel III regulation; Financial stability; Monetary policy; Agent-based computational economics
    JEL: C63 E52 E6 G1 G21 G28
    Date: 2015–12
  2. By: Alexandru Mandes (University of Giessen)
    Abstract: This contribution addresses the impact of high-frequency electronic liquidity provision strategies on financial markets' intraday dynamics, by evaluating the interaction between multiple trading strategies within a computer laboratory, i.e. an artificial stock market. Initially, a realistic base-line model is set up around a continuous double auction market, with trading being pursued only by four types of low-frequency market participants. Sequentially, the high-frequency agents are added to the model and the corresponding changes related to various measures of market quality and market systemic risk are analyzed, under both regular and market stress conditions, such as when the order ow balance is suddenly disrupted by a large volume-in-line sell program. A detailed intraday analysis of a ash crash emergence is also conducted. Finally, possible regulatory policies such as minimum holding or quote resting time and financial-transaction taxes are assessed.
    Keywords: agent-based modeling, continuous double auction, high-frequency trading, electronic liquidity provision, market quality, systemic risk, ash crash, regulatory policies
    JEL: C63 G17 G28
    Date: 2015
  3. By: Verwaart, Tim; Eva, van den Broek
    Keywords: Agent-based simulation of competing sustainability enhancing strategies for the pork supply chain, Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety, Food Security and Poverty,
    Date: 2015
  4. By: Wannaphong Durongkaveroj (Faculty of Economics, Ramkhamhaeng University); Luca Parisotto (United Nations Economic and Social Commission for Asia and the Pacific (ESCAP))
    Abstract: The advantages of using CGE models for trade policy analysis are clear, and although there are some significant challenges to their use, a careful application of such models can provide an invaluable asset to policymakers and researchers alike. It must however be remembered that CGE models remain illustrative simplifications of what a real economy looks like; hence the results must be understood as such. Nevertheless, if integrated into a thoughtful and encompassing analytical approach, and reinforced with the use of other tools such as indices and empirical analyses, CGE models are powerful tools that can significantly strengthen Thailand’s trade policy during this critical juncture along its development path.
    Keywords: CGE, regionalism, trade policy, thailand, policy making
    JEL: F1
    Date: 2015–12
  5. By: Jara Tamayo, Holguer Xavier; Tumino, Alberto; Sutherland, Holly
    Abstract: The idea of a common unemployment benefit system for the European Monetary Union (EMU) has provoked increasing interest in both the political and academic spheres because of its potential to smooth fluctuations in income across member states and to strengthen income security for the unemployed. In this paper, we simulate two hypothetical negative employment shocks and make use of the microsimulation model EUROMOD to explore the implications for income protection of the introduction of an EMU unemployment insurance (EMU-UI) scheme, for a selected number of countries of the Monetary Union. Our results show that the EMU-UI has the potential to reduce the risk of poverty for those affected by the negative employment shock and to have an additional positive effect on within-country income stabilisation, although the effects of the EMU-UI vary considerably in size across the countries analysed.
    Date: 2015–12–24
  6. By: Berlinger, Edina; Bihary, Zsolt; Walter, György
    Abstract: The paper analyzes a special corporate banking product, the so called cash-pool, which gained remarkable popularity in the recent years as firms try to centralize and manage their liquidity more efficiently. The novelty of this paper is the formalization of a valuation model which can serve as a basis for a Monte Carlo simulation to assess the most important benefits of the firms arising from the pooling of their cash holdings. The literature emphasizes several benefits of cash-pooling such as interest rate savings, economy of scale and reduced cash-flow volatility. The presented model focuses on the interest rate savings complemented with a new aspect: the reduced counterparty risk toward the bank. The main conclusion of the analysis is that the value of a cash-pool is higher in case of firms with large, diverse and volatile cash-flows having less access to the capital markets especially if the partner bank is risky and offers a high interest spread. It is also shown that cash-pooling is not the privilege of large multinational firms any more as the initial direct costs can be easily regained within a year even in the case of SMEs.
    Keywords: corporate cash management, banking transaction services, cash-pool, Monte-Carlo simulation, net interest spread, counterparty risk
    JEL: G15 G21 G32
    Date: 2016–01–20
  7. By: H. Xavier Jara
    Abstract: The aim of this study is to evaluate the feasibility to implement a tax and benefit microsimulation model for Ecuador using EUROMOD as an interface. We first present a detailed description of the main components of the tax and benefit system in Ecuador for year 2014. We then describe available micro datasets, which could be potentially used as input data for the microsimulation model. Finally, we provide an assessment and recommendations concerning the possibilities for simulating particular instruments of the tax-benefit system with the data available in the country.
    Keywords: taxes, benefits, microsimulation, income
    Date: 2015
  8. By: Reiter, Michael (Institute for Advanced Studies, Vienna)
    Abstract: The paper presents a computationally efficient method to solve overlapping generations models with asset choice. The method is used to study an OLG economy with many cohorts, up to 3 different assets, stochastic volatility, short-sale constraints, and subject to rather large technology shocks. On the methodological side, the main findings are that global projection methods with polynomial approximations of degree 3 are sufficient to provide a very precise solution, even in the case of large shocks. Globally linear approximations, in contrast to local linear approximations, are sufficient to capture the most important financial statistics, including not only the average risk premium, but also the variation of the risk premium over the cycle. However, global linear approximations are not sufficient to reliably pin down asset choices. With a risk aversion parameter of only 4, the model generates a price of risk, measured as the Sharpe ratio, that is almost half of what it is for US stocks. However, the asset price fluctuations and the equity premium are much smaller than in US data.
    Keywords: OLG models, asset choice, projection methods
    JEL: C63 C68 E21 G11
    Date: 2015–12
  9. By: Nikolaos Halidias
    Abstract: Our aim in this note is to construct explicit numerical schemes by using a splitting step method combined with the semi discrete technique. We apply our results to the Ait-Sahalia model and propose an explicit and positivity preserving numerical scheme.
    Date: 2016–01
  10. By: Vincent Leyaro; Elineema Kisanga; Gemma Wright; Helen Barnes; Michell Mpike
    Abstract: This paper presents the findings from a feasibility study on the potential for developing a static tax-benefit microsimulation model for Tanzania. The paper provides an account of the current tax-benefit system in Tanzania and introduces the survey dataset which could function as the underpinning data for the model. The paper concludes with an assessment of the feasibility of producing such a model for Tanzania with reference to personal income tax, indirect taxes, and contributory and non-contributory benefits. Keywords: tax, benefits, microsimulation, Tanzania
    Keywords: tax, benefits, microsimulation, Tanzania
    Date: 2015
  11. By: Imke H\"ofers; Ralf Wunderlich
    Abstract: We consider an investor faced with the classical portfolio problem of optimal investment in a log- Brownian stock and a fixed-interest bond, but constrained to choose portfolio and consumption strategies which reduce a dynamic shortfall risk measure. For continuous and discrete-time financial markets we investigate the loss in expected utility of intermediate consumption and terminal wealth caused by imposing a dynamic risk constraint. We derive the dynamic programming equations for the resulting stochastic optimal control problems and solve them numerically. Our numerical results indicate that the loss of portfolio performance is quite small while the risk is reduced considerably. We also investigate discretization effects and the loss in performance if trading is possible at discrete time points only.
    Date: 2016–02
  12. By: Maximilian Seyrich; Didier Sornette
    Abstract: We present a plausible micro-founded model for the previously postulated power law finite time singular form of the crash hazard rate in the Johansen-Ledoit-Sornette model of rational expectation bubbles. The model is based on a percolation picture of the network of traders and the concept that clusters of connected traders share the same opinion. The key ingredient is the notion that a shift of position from buyer to seller of a sufficiently large group of traders can trigger a crash. This provides a formula to estimate the crash hazard rate by summation over percolation clusters above a minimum size of a power sa (with a > 1) of the cluster sizes s, similarly to a generalized percolation susceptibility. The power sa of cluster sizes emerges from the super-linear dependence of group activity as a function of group size, previously documented in the literature. The crash hazard rate exhibits explosive finite-time singular behaviors when the control parameter (fraction of occupied sites, or density of traders in the network) approaches the percolation threshold pc. Realistic dynamics are generated by modelling the density of traders on the percolation network by an Ornstein-Uhlenbeck process, whose memory controls the spontaneous excursion of the control parameter close to the critical region of bubble formation. Our numerical simulations recover the main stylized properties of the JLS model with intermittent explosive super-exponential bubbles interrupted by crashes.
    Date: 2016–01
  13. By: Tsz-Kin Chung (Tokyo Metropolitan University); Cho-Hoi Hui (Hong Kong Monetary Authority); Ka-Fai Li (Hong Kong Monetary Authority)
    Abstract: Although the affine Gaussian term-structure model has been a workhorse model in term-structure modelling, it remains doubtful whether it is an appropriate model in a low interest rate environment because of its inability to preclude negative interest rates. This paper uses an alternative quadratic Gaussian-term structure model which is well known to be as tractable as the affine model and yet is suitable for interest rates close to zero. Compared with the quadratic model under the zero lower bound, we illustrate how the estimated term premium can be biased upward under the affine model. In contrast to the affine model, our numerical study shows that the quadratic model renders the estimated term premium less likely to be affected by the persistence of the data near the zero lower bound.
    JEL: C32 E43 E44 E52
    Date: 2015–10
  14. By: John J. Nay; Yevgeniy Vorobeychik
    Abstract: The Prisoner's Dilemma has been a subject of extensive research due to its importance in understanding the ever-present tension between individual self-interest and social benefit. A strictly dominant strategy in a Prisoner's Dilemma (defection), when played by both players, is mutually harmful. Repetition of the Prisoner's Dilemma can give rise to cooperation as an equilibrium, but defection is as well, and this ambiguity is difficult to resolve. The numerous behavioral experiments investigating the Prisoner's Dilemma highlight that players often cooperate, but the level of cooperation varies significantly with the specifics of the experimental predicament. We present the first computational model of human behavior in repeated Prisoner's Dilemma games that unifies the diversity of experimental observations in a systematic and quantitatively reliable manner. Our model relies on data we integrated from many experiments, comprising 168,386 individual decisions. The computational model is composed of two pieces: the first predicts the first-period action using solely the structural game parameters, while the second predicts dynamic actions using both game parameters and history of play. Our model is extremely successful not merely at fitting the data, but in predicting behavior at multiple scales in experimental designs not used for calibration, using only information about the game structure. We demonstrate the power of our approach through a simulation analysis revealing how to best promote human cooperation.
    Date: 2016–01
  15. By: Matthew Robson (Department of Economics and Related Studies, University of York, UK.); Miqdad Asaria (Centre for Health Economics, University of York, UK.); Richard Cookson (Centre for Health Economics, University of York, UK.); Aki Tsuchiya (Department of Economics and School of Health and Related Research, University of Sheffield, UK.); Shehzad Ali (Centre for Health Economics and Department of Health Sciences, University of York, UK.)
    Abstract: Policy makers faced with equality-efficiency trade-offs can articulate the nature and extent of their health inequality aversion using social welfare functions. In this study we use data from an online survey of the general public in England (n=246) to elicit health inequality aversion parameters by numerically solving Atkinson and Kolm social welfare functions. We elicit median inequality aversion parameters of 10.95 for Atkinson and 0.15 for Kolm. These values suggest substantial concern for health inequality among the English general public which, at current levels of quality adjusted life expectancy, implies weighting health gains to the poorest fifth of people in society six to seven times as highly as health gains to the richest fifth.
    Keywords: health inequality, inequality aversion, social preferences, survey, welfare function
    Date: 2016–01

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