nep-cmp New Economics Papers
on Computational Economics
Issue of 2016‒06‒09
eleven papers chosen by

  1. Fiscal sustainability and demographic change: a micro approach for 27 EU countries By Dolls, Mathias; Doorley, Karina; Paulus, Alari; Schneider, Hilmar; Siegloch, Sebastian; Sommer, Eric
  2. No Man Is an Island: The Impact of Heterogeneity and Local Interactions on Macroeconomic Dynamics By Mattia Guerini; Mauro Napoletano; Andrea Roventini
  3. ETLAnow: A Model for Forecasting with Big Data – Forecasting Unemployment with Google Searches in Europe By Tuhkuri, Joonas
  4. Portfolio Selection in a Multi-Input Multi-Output Setting: a Simple Monte-Carlo-FDH Algorithm By Nalpas, Nicolas; Simar, Léopold; Vanhems, Anne
  5. Demographic Change and Fiscal Sustainability in Asia By Sang-Hyop Lee; Jungsuk Kim; Donghyun Park
  6. Analyzing Collective Trade Policy Actions in Response to Cyclical Risk in Agricultural Production: The Case of International Wheat By Lee, Youngjae; Kennedy, Lynn
  7. A multi-state approach and flexible payment distributions for micro-level reserving in general insurance By Katrien Antonio; Els Godecharle; Robin Van Oirbeek
  8. Pathwise Iteration for Stochastic Dynamic Programs By Christian Bender; Christian Gaertner; Nikolaus Schweizer
  9. Soultion and Estimation of Dynamic Discrete Choice Structural Models Using Euler Equations By Victor Aguirregabiria; Arvind Magesan
  10. Shale Oil Production Expansion and Water-Energy Nexus in North Dakota: A Decentralized Agent-Based Modeling Approach By Lim, Siew Hoon; Lin, Zhulu; Borders, Michael; Lin, Tong
  11. Robustness of mathematical models and technical analysis strategies By Ahmed Bel Hadj Ayed; Gr\'egoire Loeper; Fr\'ed\'eric Abergel

  1. By: Dolls, Mathias; Doorley, Karina; Paulus, Alari; Schneider, Hilmar; Siegloch, Sebastian; Sommer, Eric
    Abstract: The effect of demographic change on the labor force and on fiscal revenues is topical in light of potential pension shortfalls. This paper evaluates the effect of demographic changes between 2010 and 2030 on labor force participation and government budgets in the EU-27. Our analysis involves the incorporation of population projections, and an explicit modeling of the supply and demand side of the labor market. Our approach overcomes a key shortcoming of most existing studies that focus only on labor supply when assessing the effects of policy reforms. Ignoring wage reactions greatly understates the increase in fiscal revenues, suggesting that fiscal strain from demographic change might be less severe than currently perceived. Finally, as a policy response to demographic change and worsening fiscal budgets, we simulate the increase in the statutory retirement age. Our policy simulations confirm that raising the statutory retirement age can balance fiscal budgets in the long run.
    Date: 2016–01–06
  2. By: Mattia Guerini; Mauro Napoletano; Andrea Roventini
    Abstract: We develop an agent-based model in which heterogeneous firms and households interact in labor and good markets according to centralized or decentralized search and matching protocols. As the model has a deterministic backbone and a full-employment equilibrium, it can be directly compared to Dynamic Stochastic General Equilibrium (DSGE) models. We study the effects of negative productivity shocks by way of impulse-response functions (IRF). Simulation results show that when search and matching are centralized, the economy is always able to return to the full employment equilibrium and IRFs are similar to those generated by DSGE models. However, when search and matching are local, coordination failures emerge and the economy persistently deviates from full employment. Moreover, agents display persistent heterogeneity. Our results suggest that macroeconomic models should explicitly account for agents' heterogeneity and direct interactions.
    Keywords: Agent-Based Model, Local Interactions, Heterogeneous Agents, DSGE Model
    Date: 2016–05–30
  3. By: Tuhkuri, Joonas
    Abstract: In this report we document the ETLAnow project. ETLAnow is a model for forecasting with big data. At the moment, it predicts the unemployment rate in the EU-28 countries using Google search data. This document is subject to updates as the ETLAnow project advances.
    Keywords: Big Data, Google, Internet, Nowcasting, Forecasting, Unemployment, Europe
    JEL: C22 C53 C55 C82 E27
    Date: 2016–05–25
  4. By: Nalpas, Nicolas; Simar, Léopold; Vanhems, Anne
    Abstract: This paper proposes a nonparametric efficiency measurement approach for the static portfo- lio selection problem in a general inputs-outputs space, where inputs can include variance and kurtosis and outputs can include mean and skewness. Our work is in the vein of Briec, Kerstens and Jokung (2007) and Jurzenko, Maillet and Merlin (2006) who develop a directional dis- tance (shortage function) approach to evaluate the performance of portfolios in Mean-Variance- Skewness and in Mean-Variance-Skewness-Kurtosis spaces. Our approach use the Free Disposal Hull (FDH) estimator to derive an algorithm avoiding the heavy and non-robust numerical op- timization approaches suggested so far. This new approach is much faster, more robust to reach the optimum and more exible since it can be extended to more general situations. We illustrate the algorithm with a data set on the French CAC 40 already used in the literature, to compare our method with the numerical optimization approaches.
    Keywords: Directional Distance function, FDH estimator, Efficient frontier, Portfolio performance.
    Date: 2016–05
  5. By: Sang-Hyop Lee (East-West Center and University of Hawaii at Manoa, Honolulu, USA); Jungsuk Kim (Institute of International and Area Studies, Sogang University, Korea); Donghyun Park (Asian Development Bank, Manila, Philippines)
    Abstract: Changes in the population age structure can have a significant effect on fiscal sustainability since they can affect both government revenues and expenditures. For example, population aging will increase expenditures on the elderly while reducing potential growth and hence revenues. In this paper, we project government revenue, expenditure, and fiscal balance in developing Asia up to 2050. Using a simple stylized model and the National Transfer Accounts (NTA) data set, we simulate the effect of both demographic changes and economic growth. Rapidly aging countries like Korea, Japan, and Taipei, China, are likely to suffer a tangible deterioration of fiscal sustainability under their current tax and expenditure system. On the other hand, rapid economic growth can improve fiscal health in poorer countries with relatively young populations and still-growing working-age populations. Overall, our simulation results indicate that Asia’s population aging will adversely affect its fiscal sustainability, pointing to a need for Asian countries to further examine the impact of demographic shifts on their fiscal health.
    Keywords: Fiscal projection, tax, public spending, fiscal balance, population aging, Asia
    JEL: J11 J14 H20 H50 H62
    Date: 2016–01
  6. By: Lee, Youngjae; Kennedy, Lynn
    Abstract: This study shows how cyclical risk and collective trade policy actions can cumulatively worsen international food price spikes. By using spatial Computable General Equilibrium (CGE) and Eaton and Kortum’s trade model, this study offers the following conclusions. At first, the cyclical shock in agricultural production might cause agricultural and food price spikes in the international agricultural and food markets. Second, export restrictions and import responses can worsen food price spikes and disrupt trade flows in international agricultural and food markets. Finally, the effect of these collective trade policy actions and resulting food price spikes in international agricultural and food markets do not dissipate even after agricultural production has recovered.
    Keywords: collective trade policy actions, cyclical risk, export restriction., Agribusiness, Agricultural and Food Policy, Demand and Price Analysis, International Relations/Trade, Productivity Analysis, F10, F13, F14, F18, O19, Q17, Q54.,
    Date: 2016–07–31
  7. By: Katrien Antonio; Els Godecharle; Robin Van Oirbeek
    Abstract: Insurance companies hold reserves to be able to fulll future liabilities with respect to the policies they write. Micro-level reserving methods focus on the development of individual claims over time, providing an alternative to the classical techniques that aggregate the development of claims into run-o triangles. This paper presents a discrete-time multi-state framework that reconstructs the claim development process as a series of transitions between a given set of states. The states in our setting represent the events that may happen over the lifetime of a claim, i.e. reporting, intermediate payments and closure. For each intermediate payment we model the payment distribution separately. To this end, we use a body-tail approach where the body of the distribution is modeled separately from the tail. Generalized Additive Models for Location, Scale and Shape introduced by Stasinopoulos and Rigby (2007) allow for exible modeling of the body distribution while incorporating covariate information. We use the toolbox from Extreme Value Theory to determine the threshold separating the body from the tail and to model the tail of the payment distributions. We do not correct payments for in ation beforehand, but include relevant covariate information in the model. Using these building blocks, we outline a simulation procedure to evaluate the RBNS reserve. The method is applied to a real life data set, and we benchmark our results by means of a back test.
    Keywords: micro-level reserving, extreme value theory, splicing, multi-state model
    Date: 2016
  8. By: Christian Bender; Christian Gaertner; Nikolaus Schweizer
    Abstract: We introduce a novel numerical approach for a class of stochastic dynamic programs which arise as discretizations of backward stochastic differential equations or semi-linear partial differential equations. Solving such dynamic programs numerically requires the approximation of nested conditional expectations, i.e., iterated integrals of previous approximations. Our approach allows us to compute and iteratively improve upper and lower bounds on the true solution starting from an arbitrary and possibly crude input approximation. We demonstrate the benefits of our approach in a high dimensional financial application.
    Date: 2016–05
  9. By: Victor Aguirregabiria; Arvind Magesan (University of Calgary)
    Abstract: This paper extends the Euler Equation (EE) representation of dynamic decision problems to a general class of discrete choice models and shows that the advantages of this approach apply not only to the estimation of structural parameters but also to the computation of a solution and to the evaluation of counterfactual experiments. We use a choice probabilities representation of the discrete decision problem to derive marginal conditions of optimality with the same features as the standard EEs in continuous decision problems. These EEs imply a Â…fixed point mapping in the space of conditional choice values, that we denote the Euler equation-value (EE-value) operator. We show that, in contrast to Euler equation operators in continuous decision models, this operator is a contraction. We present numerical examples that illustrate how solving the model by iterating in the EE-value mapping implies substantial computational savings relative to iterating in the Bellman equation (that requires a much larger number of iterations) or in the policy function (that involves a costly valuation step). We deÂ…fine a sample version of the EE-value operator and use it to construct a sequence of consistent estimators of the structural parameters, and to evaluate counterfactual experiments. The computational cost of evaluating this sample-based EE-value operator increases linearly with sample size, and provides an unbiased (in fiÂ…nite samples) and consistent estimator the counterfactual. As such there is no curse of dimensionality in the consistent estimation of the model and in the evaluation of counterfactual experiments. We illustrate the computational gains of our methods using several Monte Carlo experiments.
    Date: 2016–05–24
  10. By: Lim, Siew Hoon; Lin, Zhulu; Borders, Michael; Lin, Tong
    Abstract: The expansion of oil industry in the region has led to tremendous increases in the demand for water in western North Dakota where quality water is most scarce. Thus, striking a delicate balance between preserving water resources and expanding oil production at the Bakken is a challenging task. Using a decentralized agent-based model, we posit water depots as “agents” and examine the emergent behavior of water depots under three potential policy scenarios, and these scenarios are then compared to the baseline results to gauge the impacts on water consumption in the North Dakota oil patch. Our results show that restricting industrial use of the Missouri River and Lake Sakakawea waters would reduce a sizable amount of water consumption at the Bakken, but system violations would be prevalent and rendering null the restriction.
    Keywords: Water allocation, surface water, groundwater, Bakken shale, Resource /Energy Economics and Policy, Q25, Q57,
    Date: 2016
  11. By: Ahmed Bel Hadj Ayed; Gr\'egoire Loeper; Fr\'ed\'eric Abergel
    Abstract: The aim of this paper is to compare the performances of the optimal strategy under parameters mis-specification and of a technical analysis trading strategy. The setting we consider is that of a stochastic asset price model where the trend follows an unobservable Ornstein-Uhlenbeck process. For both strategies, we provide the asymptotic expectation of the logarithmic return as a function of the model parameters. Finally, numerical examples find that an investment strategy using the cross moving averages rule is more robust than the optimal strategy under parameters mis-specification.
    Date: 2016–04

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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.