nep-cmp New Economics Papers
on Computational Economics
Issue of 2016‒12‒11
eight papers chosen by
Stan Miles
Thompson Rivers University

  1. Efficiency or Equity? Simulating the Carbon Emission Permits Trading Schemes in China Based on an Inter-Regional CGE Model By Wu, Libo; Tang, Weiqi
  2. Market power rents and climate change mitigation: a rationale for coal taxes? By Richter, Phillip M.; Mendelevitch, Roman; Jotzo, Frank
  3. NONPARAMETRIC MODEL CALIBRATION FOR DERIVATIVES By Frédéric Abergel; Rémi Tachet; Riadh Zaatour
  4. A Multiple-Try Extension of the Particle Marginal Metropolis-Hastings (PMMH) Algorithm with an Independent Proposal By Takashi Kamihigashi; Hiroyuki Watanabe
  5. 'Capital Requirements, Risk Taking and Welfare in a Growing Economy' By Pierre-Richard Agénor; L. Pereira da Silva
  6. A Primer on Portfolio Choice with Small Transaction Costs By Johannes Muhle-Karbe; Max Reppen; H. Mete Soner
  7. China’s pursuit of environmentally sustainable development: Harnessing the new engine of technological innovation By Jin, Wei; Zhang, ZhongXiang
  8. Endogenous Bank Networks and Contagion By Jieshuang He

  1. By: Wu, Libo; Tang, Weiqi
    Abstract: Energy conservation and greenhouse gas (GHG) abatement have been included in the national development strategy of China. However, the rigidity in command-and-control mechanisms and arbitrariness in assignment of GHG abatement burden across regions have caused unnecessary losses in both economic efficiency and social equity. In this paper, we use an Inter-Regional Dynamic CGE (IRD-CGE) model to simulate economic and welfare impacts of climate policies on national and regional level, including carbon intensity targets, regional emission constraints and cap-and-trade mechanism. Comparison among alternative emission reduction policy mechanisms indicates that emission trading scheme can not only moderate the economic and social welfare losses, but also improve social equity by decoupling the allocation of emission permits from economic optimization of emission reduction scheme. From this perspective, emissions trading bridges the concerns for economic efficiency and social equity, since emission permits could be reallocated as an income transfer so as to promote inter-regional equity, while economic efficiency is maintained.
    Keywords: Greenhouse gas emissions, energy conservation, emission reduction, pollution, cap-and-trade mechanism, Environmental Economics and Policy, Resource /Energy Economics and Policy, Q54, Q56,
    Date: 2015–05
    URL: http://d.repec.org/n?u=RePEc:ags:ancewp:249509&r=cmp
  2. By: Richter, Phillip M.; Mendelevitch, Roman; Jotzo, Frank
    Abstract: In this paper we investigate the introduction of an export tax on steam coal levied by an individual country (Australia), or a group of major exporting countries. The policy motivation would be twofold: generating tax revenues against the background of improved terms-of-trade, while CO2 emissions are reduced. We construct and numerically apply a two-level game consisting of an optimal policy problem at the upper level, and an equilibrium model of the international steam coal market (based on COALMOD-World) at the lower level. We find that a unilaterally introduced Australian export tax on steam coal has little impact on global emissions and may be welfare reducing. On the contrary, a tax jointly levied by a "climate coalition" of major coal exporters may well leave these better off while significantly reducing global CO2 emissions from steam coal by up to 200 Mt CO2 per year. Comparable production-based tax scenarios consistently yield higher tax revenues but may be hard to implement against the opposition of disproportionally affected local stakeholders depending on low domestic coal prices.
    Keywords: Export tax, steam coal, supply-side climate policy, carbon leakage, Australia, Mathematical Program with Equilibrium Constraints (MPEC), Environmental Economics and Policy, Resource /Energy Economics and Policy, Q48, F13, Q58, Q41, C61,
    Date: 2017–08
    URL: http://d.repec.org/n?u=RePEc:ags:ancewp:249511&r=cmp
  3. By: Frédéric Abergel (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec, FiQuant - Chaire de finance quantitative - Ecole Centrale Paris); Rémi Tachet (Senseable City Laboratory - MIT - Massachusetts Institute of technology [Cambridge], FiQuant - Chaire de finance quantitative - Ecole Centrale Paris); Riadh Zaatour (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec, FiQuant - Chaire de finance quantitative - Ecole Centrale Paris)
    Abstract: Consistently fitting vanilla option surfaces is an important issue in derivative modelling. In this paper, we consider three different models: local and stochastic volatility, local correlation, hybrid local volatility with stochastic rates, and address their exact, nonparametric calibration. This calibration process requires solving a nonlinear partial integro-differential equation. A modified alternating direction implicit algorithm is used, and its theoretical and numerical analysis is performed.
    Date: 2016–11–19
    URL: http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01399542&r=cmp
  4. By: Takashi Kamihigashi (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Hiroyuki Watanabe (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
    Abstract: In this paper we propose a multiple-try extension of the PMMH algorithm with an independent proposal. In our algorithm, I ∈ ℕ parameter particles are sampled from the independent proposal. For each of them, a particle fiter with K ∈ ℕ state particles is run. We show that the algorithm has the following properties: (i) the distribution of the Markov chain generated by the algorithm converges to the posterior of interest in total variation; (ii) as I increases to ∞, the acceptance probability at each iteration converges to 1; and (iii) as I increases to 1, the autocorrelation of any order for any parameter with bounded support converges to 0. These results indicate that the algorithm generates almost i.i.d. samples from the posterior for sufficiently large I. Our numerical experiments suggest that one can visibly improve mixing by increasing I from 1 to only 10. This does not significantly increase computation time if a computer with at least 10 threads is used.
    Keywords: Multiple-try method; Particle marginal Metropolis-Hastings; Markov chain Monte Carlo; Mixing; State space models
    Date: 2016–11
    URL: http://d.repec.org/n?u=RePEc:kob:dpaper:dp2016-36&r=cmp
  5. By: Pierre-Richard Agénor; L. Pereira da Silva
    Abstract: The effects of capital requirements on risk taking and welfare are studied in a stochastic overlapping generations model of endogenous growth with banking, limited liability, and government guarantees. Capital producers face a choice between a safe technology and a risky (but socially inefficient) technology, and bank risk taking is endogenous. Setting the capital adequacy ratio above a structural threshold can eliminate the equilibrium with risky loans (and thus inefficient risk taking), but numerical simulations show that this may entail a welfare loss. In addition, the optimal ratio may be too high in practice and may require concomitantly a broadening of the perimeter of regulation and a strengthening of financial supervision to prevent disintermediation and distortions in financial markets.
    Date: 2016
    URL: http://d.repec.org/n?u=RePEc:man:cgbcrp:226&r=cmp
  6. By: Johannes Muhle-Karbe; Max Reppen; H. Mete Soner
    Abstract: This survey is an introduction to asymptotic methods for portfolio-choice problems with small transaction costs. We outline how to derive the corresponding dynamic programming equations and simplify them in the small-cost limit. This allows to obtain explicit solutions in a wide range of settings, which we illustrate for a model with mean-reverting expected returns and proportional transaction costs. For even more complex models, we present a policy iteration scheme that allows to compute the solution numerically.
    Date: 2016–12
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1612.01302&r=cmp
  7. By: Jin, Wei; Zhang, ZhongXiang
    Abstract: Whether China continues its business-as-usual investment-driven, environment-polluting growth pattern or adopts an investment and innovation-driven, environmentally sustainable development holds important implications for both national and global environmental governance. Building on a Ramsey-Cass-Koopmans growth model that features endogenous technological change induced by R&D and knowledge stock accumulation, this paper presents an exposition, both analytically and numerically, of the mechanism underlining China’s economic transition from an investment-driven, pollution-intensive to an investment and innovation-driven, environmentally sustainable growth path. We show that if R&D technological innovation is incorporated into China’s growth mechanism, then at some tipping point in time when marginal welfare gain of R&D for knowledge accumulation becomes equalized with that of investment for physical asset deployment, China’s economy will launch capital investment and R&D simultaneously and make a transition to a sustainable growth path along which consumption, capital investment, and R&D have a balanced share of 5: 4: 1, consumption, capital stock, and knowledge stock all grow at a rate of 4.9%, and environmental quality improves at a rate of 2.5%. In contrast, if R&D technological innovation is not harnessed as a new growth engine, then China’s economy will follow its business-as-usual investment-driven growth path along which standalone accumulation of dirty physical capital stock will lead to a more than 200-fold increase in environmental pollution.
    Keywords: Endogenous technological change, sustainable development, economic growth model, China’s economic transition, Research and Development/Tech Change/Emerging Technologies, Q55, Q58, Q43, Q48, O13, O31, O33, O44, F18,
    Date: 2016–01
    URL: http://d.repec.org/n?u=RePEc:ags:ancewp:249520&r=cmp
  8. By: Jieshuang He (Indiana University)
    Abstract: I develop a model to study two related questions: how bank decisions to form connections depend on fundamentals; and how financial stability depends on bank network structure. In my model, banks are connected through two layers of networks: interbank debts and banks' common investments in non-financial firms. These layers of interconnections are incentivized by diversified investments when banks maximize their expected equity values according to mean-variance rules. Comparative statics of a small number of banks indicates that, in equilibrium, as banks become less risk averse, they tend to issue more debts and form more links within the banking sector. Furthermore, I conduct numerical computations for bank default probabilities in a circle network and a more connected network. The results demonstrate that increased bank interconnectedness and common asset holdings significantly reduce systemic stability.
    Keywords: Endogenous Network, Financial Contagion, Interbank Debt, Portfolio Selection
    Date: 2016–11
    URL: http://d.repec.org/n?u=RePEc:inu:caeprp:2016005&r=cmp

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