nep-cmp New Economics Papers
on Computational Economics
Issue of 2016‒12‒04
eight papers chosen by

  1. Undermined climate policies : a study on the impact of regulatory and financial discrimination across heterogeneous firms in China By Tang, Weiqi; Meng, Bo; Wu, Libo; Liu, Yu
  2. Will China’s demographic transition exacerbate its income inequality? A CGE modeling with top-down microsimulation: By Wang, Xinxin; Chen, Kevin Z.; Robinson, Sherman; Huang, Zuhui
  3. Frictions in a Competitive, Regulated Market Evidence from Taxis By Frechette, Guilaume; Lizzeri, Alessandro; Salz, Tobias
  4. How banks’ strategies influence financial cycles: An approach to identifying micro behavior By Simone Berardi; Gabriele Tedeschi
  5. The Coconut Model with Heterogeneous Strategies and Learning By Sven Banisch; Eckehard Olbrich
  6. Can Agent-Based Models Probe Market Microstructure? By Donovan Platt; Tim Gebbie
  7. Multiple Time Series Ising Model for Financial Market Simulations By Tetsuya Takaishi
  8. Mean-Reverting Portfolio Design via Majorization-Minimization Method By Ziping Zhao; Daniel P. Palomar

  1. By: Tang, Weiqi; Meng, Bo; Wu, Libo; Liu, Yu
    Abstract: Firms in China within the same industry but with different ownership and size have very different production functions and can face very different emission regulations and financial conditions. This fact has largely been ignored in most of the existing literature on climate change. Using a newly augmented Chinese input–output table in which information about firm size and ownership are explicitly reported, this paper employs a dynamic computable general equilibrium (CGE) model to analyze the impact of alternative climate policy designs with respect to regulation and financial conditions on heterogeneous firms. The simulation results indicate that with a business-as-usual regulatory structure, the effectiveness and economic efficiency of climate policies is significantly undermined. Expanding regulation to cover additional firms has a first-order effect of improving efficiency. However, over-investment in energy technologies in certain firms may decrease the overall efficiency of investments and dampen long-term economic growth by competing with other fixed-capital investments for financial resources. Therefore, a market-oriented arrangement for sharing emission reduction burden and a mechanism for allocating green investment is crucial for China to achieve a more ambitious emission target in the long run.
    Keywords: Environmental policy, Climatic change, Business enterprises, Econometric model, Emissions, CGE, Firm heterogeneity, SME, ETS, Chinese economy
    JEL: C67 C68 O16 Q56
    Date: 2016–11
  2. By: Wang, Xinxin; Chen, Kevin Z.; Robinson, Sherman; Huang, Zuhui
    Abstract: Demographic transition due to population aging is an emerging trend throughout the developing world, and it is especially acute in China, which has undergone demographic transition more rapidly than have most industrial economies. This paper quantifies the distributional effects in the context of demographic transition using an integrated recursive dynamic computable general equilibrium model with top-down behavioral microsimulation. The results of the poverty and inequality index indicate that population aging has a negative impact on the reduction of poverty while its impact is positive with regard to equality. In addition, elderly rural households are experiencing the most serious poverty, and their inequality problems compared with other household groups and within group inequality worsens with demographic transition. These findings not only advance the previous literature but also deserve particular attention from Chinese policy makers.
    Keywords: demography, poverty, economic development, macroeconomics, mathematical models,
    Date: 2016
  3. By: Frechette, Guilaume; Lizzeri, Alessandro; Salz, Tobias
    Abstract: This paper presents a dynamic general equilibrium model of a taxi mar- ket. The model is estimated using data from New York City yellow cabs. Two salient features by which most taxi markets deviate from the efficient market ideal is the need of both market sides to physically search for trading partners in the product market as well as prevalent regulatory limitations on entry in the capital market. To assess the relevance of these features we use the model to simulate the effect of changes in entry and an alternative search technology. The results are contrasted with a policy that improves the inten- sive margin of medallion utilization through a transfer of medallions to more efficient ownership. We use the geographical features of New York City to back out unobserved demand through a matching simulation.
    Date: 2016–11
  4. By: Simone Berardi (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain; Department of Management, Università Politecnica delle Marche, Italy); Gabriele Tedeschi (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: In this paper, we show that the values of parameters of a well-calibrated model are useful in detecting micro behavior. We use a calibration procedure suitable for validating agent-based models to show how the evolution of model parameters, obtained via a rolling window estimation, illustrates the evolution of agents’ strategies in response to different economic conditions. In this regard, we calibrate the well-known financial model of Brock and Hommes using three banking indices (i.e., the S&P SmallCap 600 Financials Index, the STOXX Europe 600 Banks, and the STOXX Asia/Pacific 600 Banks) running from 1994 to 2016. The choice of a spatially and temporally diversified dataset allows us to analyze differences and similarities in the behavior of banks belonging to the different macro areas, as well as to capture agents’ reaction to the several economic phases characterizing the time series investigated.
    Keywords: Microfoundations, validation, agent-based models, heterogeneous beliefs
    JEL: C52 C63 G15
    Date: 2016
  5. By: Sven Banisch; Eckehard Olbrich
    Abstract: In this paper, we develop an agent-based version of the Diamond search equilibrium model - also called Coconut Model. In this model, agents are faced with production decisions that have to be evaluated based on their expectations about the future utility of the produced entity which in turn depends on the global production level via a trading mechanism. While the original dynamical systems formulation assumes an infinite number of homogeneously adapting agents obeying strong rationality conditions, the agent-based setting allows to discuss the effects of heterogeneous and adaptive expectations and enables the analysis of non-equilibrium trajectories. Starting from a baseline implementation that matches the asymptotic behavior of the original model, we show how agent heterogeneity can be accounted for in the aggregate dynamical equations. We then show that when agents adapt their strategies by a simple temporal difference learning scheme, the system converges to one of the fixed points of the original system. Systematic simulations reveal that this is the only stable equilibrium solution.
    Date: 2016–12
  6. By: Donovan Platt; Tim Gebbie
    Abstract: We extend prior evidence that naively using intraday agent-based models that involve realistic order-matching processes for modeling continuous-time double auction markets seems to fail to be able to provide a robust link between data and many model parameters, even when these models are able to reproduce a number of well-known stylized facts of return time series. We demonstrate that while the parameters of intraday agent-based models rooted in market microstructure can be meaningfully calibrated, those exclusively related to agent behaviors and incentives remain problematic. This could simply be a failure of the calibration techniques used but we argue that the observed parameter degeneracies are most likely a consequence of the realistic matching processes employed in these models. This suggests that alternative approaches to linking data, phenomenology and market structure may be necessary and that the stylized fact-centric validation of intraday agent-based models is insufficient, and warns that increased mechanistic complexity of agent-based market models may lead to flawed insights.
    Date: 2016–11
  7. By: Tetsuya Takaishi
    Abstract: In this paper we propose an Ising model which simulates multiple financial time series. Our model introduces the interaction which couples to spins of other systems. Simulations from our model show that time series exhibit the volatility clustering that is often observed in the real financial markets. Furthermore we also find non-zero cross correlations between the volatilities from our model. Thus our model can simulate stock markets where volatilities of stocks are mutually correlated.
    Date: 2016–11
  8. By: Ziping Zhao; Daniel P. Palomar
    Abstract: This paper considers the mean-reverting portfolio design problem arising from statistical arbitrage in the financial markets. The problem is formulated by optimizing a criterion characterizing the mean-reversion strength of the portfolio and taking into consideration the variance of the portfolio and an investment budget constraint at the same time. An efficient algorithm based on the majorization-minimization (MM) method is proposed to solve the problem. Numerical results show that our proposed mean-reverting portfolio design method can significantly outperform every underlying single spread and the benchmark method in the literature.
    Date: 2016–11

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