nep-cmp New Economics Papers
on Computational Economics
Issue of 2017‒04‒02
thirteen papers chosen by
Stan Miles
Thompson Rivers University

  1. Examining Trade Response of Armington-Krugman-Melitz Encompassing Module in a CGE Model By Ken Itakura; Kazuhiko Oyamada
  2. Intra-regional vs extra-regional liberalization trade in Central America By Pedro Caldentey; Manuel Alejandro Cardenete; Adolfo Cristóbal; Olexandr Nekhay
  3. Assessing climate change impacts on sustainable development at the regional level a case study of the province of Medenine southeast of Tunisia By Mohamed Arbi Abdeladhim; Mongi Sghaier; Abdallah Akari; Lindsay SHUTES (née CHANT)
  4. Artificial Neural Networks and Automatic Time Series Analysis, methodological approach, results and examples using health-related time series. By Belen Garcia Carceles; Belén García Cárceles; Bernardí Cabrer Borrás; Jose Manuel Pavía Miralles
  5. Effects of a reduction in employers’ Social Security contributions: Evidence from Spain By Pilar Campoy-Muñoz; Manuel Alejandro Cardenete; María del Carmen Delgado
  7. Projection of China’s energy structure change under carbon emission peak target by 2030 By Yanshuo Zhu; Wang Zheng; Zhu Yongbin; Shi Ying1
  8. Heterodox vs Orthodox Adjustment in Venezuela:An Assessment of the effects of the restriction on imports using a CGE model By Ramón E. Key-Hernández; Claudina Villarroel
  9. International competitiveness and investment: simulations with a bilateral trade model By Rossella Bardazzi; Leonardo Ghezzi
  10. On the Effect of an Increase in the VAT on Electricity in Portugal By Pereira, Alfredo; Pereira, Rui
  11. Oil market developments and the global economy from a general equilibrium perspective By Gbadebo Oladosu
  12. Budget Rules and Resource Booms and Busts: A Dynamic Stochastic General Equilibrium Analysis By Sherman Robinson; Shantayanan Devarajan , Yazid Dissou , Delfin S. Go
  13. Emergency reserves, private storage, or trade? How to prevent extreme grain prices in a two country setting By Jan Brockhaus; Jan Brockhaus; Matthias Kalkuhl

  1. By: Ken Itakura; Kazuhiko Oyamada
    Abstract: Computable General Equilibrium (CGE) models have been widely used for quantifying economic impacts of free trade agreements and economic partnership agreements. For the recent examples, it is estimated that Trans-Pacific Partnership (TPP) will increase Japanese real GDP by 0.66%, according to Cabinet Secretariat (2013) in Japan. Pacific Economic Cooperation Council (2012) also estimated that the impact of TPP on Japanese real GDP would be 2.0% higher by 2020. Both of the estimates are based on simulation results obtained from global CGE model; the former uses the GTAP model (Hertel, (1997), and McDougall (2003)), and the latter develops their own global CGE model (Zhai (2008), and Petri et al. (2012)). The difference in the estimated economic effects seems to be large, however, it is not surprising since the components taken into their estimates are different. Petri et al. (2012) considers exhaustive components of liberalization; such as removing tariffs, reducing non-tariff barriers, liberalizing trade in services and foreign direct investment. On the other hand, Cabinet Secretariat (2013) estimates the impact of removing tariffs, thereby resulted in the lower estimate. Beside the difference in the components of liberalization, it is more interesting for us to ponder the difference in trade specification used in their global CGE model. Petri et al. (2012) define their trade module by following Melitz (2003) based on product differentiation at the firm level. The GTAP model has been using the conventional Armington (1969) specification based on product differentiation at the country level. Thus, we are interested in comparing different trade specifications in global CGE model and its implications for resulting estimates of economic impacts of trade liberalization.This paper introduces the AKME module following the modeling strategy in Dixon and Rimmer (2012) and Oyamada (2013). We modify the GTAP model (Hertel, 1997), which is a global CGE model widely used by researchers for quantifying policy impact. We redefine trade flow information stored in the benchmark GTAP Data Base, and implement a calibration procedure established in Oyamada (2013) and Oyamada (2014b). We run simulation of trade liberalization to draw a comparison between different trade specifications, decomposing the trade response in detail. Since there exits only a handful of attempts to compare the trade effects by examining the AKME module, we provide another results for further insights. Impacts of liberalization on regional trade are amplified as we switch trade specification from the standard GTAP model to Armington, Krugman, and Melitz in turn. By introducing “sourcing-by-agent”, we can decompose the simulation results on regional imports into agent specific demands, which is not available in the standard GTAP model. Also with the sourcing-by-agent, we can identify the intra-manufactured trade flows as the largest share. Further decomposition reveals that intensive margin trade effects are more pronounced in Krugman specification, whereas extensive margin trade effects are significant in Melitz specification. These decompositions clearly enrich our interpretation of trade liberalization.
    Keywords: Global, Trade issues, General equilibrium modeling
    Date: 2015–07–01
  2. By: Pedro Caldentey (Universidad Loyola Andalucía); Manuel Alejandro Cardenete (Universidad Loyola Andalucía); Adolfo Cristóbal (Universidad Loyola Andalucía); Olexandr Nekhay (Universidad Loyola Andalucía)
    Abstract: The countries in the Central American region (henceforth CA: Guatemala, Honduras, El Salvador, Nicaragua, Costa Rica and Panamá) have signed multiple trade agreements in the recent past. Sometimes the whole CA worked as a unified agent, for instance vis à vis the United States or the European Union. In other cases, some individual countries took the initiative to extend their list of freely tradeable goods and services. CA exports and imports very extensively with the United States (39% of the aggregate exports). However, the recent growth of the intra-regional trade has been especially remarkable. The experts emphasize that such trade generates more internal added value than the inter-regional one, which may allow for higher local welfare and a more favorable external balance for CA. Our simulations try to evaluate which alternative is locally preferable, taking into account that any intra-regional trade liberalization would stimulate sectors that compete for productive resources with the world exports. To that purpose, our first shock will be an elimination of existing tariffs at the intra-regional level while keeping the protection against imports from the rest of the world. In our second simulation, we will keep the current level of tariffs within CA, while reducing with the shock the barriers to the inter-regional trade with the United States. Taking this background into account, we use a perfectly competitive GTAP CGE model based on the GTAP 9 database, to assess the impact of the different scenarios, based on the current trade relationships. Our intention is then advising the CA authorities as to which range of trade negotiations should be prioritized today.
    Keywords: GTAP, applied general equilibrium, trade liberalization, Central America
    JEL: C68 D58
    Date: 2016–03
  3. By: Mohamed Arbi Abdeladhim; Mongi Sghaier; Abdallah Akari; Lindsay SHUTES (née CHANT)
    Abstract: This paper presents the way that multiple analytical and empirical methods are used to calculate a composite indicator for an ex-ante impacts assessment of climate change on sustainable development in the context of arid zones in Tunisia. To quantify the composite indicator, a static Computable General Equilibrium model (CGE) was adapted to the regional context. The Regional Social Matrix building (RSAM) building procedure was based on a set of techniques and approaches of regionalization. The national supply and use matrix has served as a starting point. A bottom-up approach has been used to build a regional supply and use matrix for the agricultural sector that take into account natural resources (land and water) as intermediate inputs. The regional SAM includes ten (10) production factors, eighteen (18) production sectors producing twenty two (22) goods and services, two (2) households, one representative enterprise, two (2) public sectors (Government and regional administration), seven (7) taxes, two (2) capital accounting accounts, the rest of the world and the rest of the country. The SAM has been used to calculate the regional Gross Domestic Product (GDP). Two simulations have been run i) the decline of natural capital due to the induced effects of climate change and ii) the regional climate change adaptation strategy. Based on the outputs of the CGE model the impacts of climate change and adaptation strategy on the main regional economic indicators were analyzed. Finally the multi-criteria analysis method (MCA) was used to calculate the aggregated regional indicator of sustainability Results showed that the regional climate change adaptation strategy has a positive impact but it’s not sufficient to maintain sustainability level as in the current situation.
    Keywords: Tunisia, Regional modeling, General equilibrium modeling
    Date: 2015–07–01
  4. By: Belen Garcia Carceles; Belén García Cárceles; Bernardí Cabrer Borrás; Jose Manuel Pavía Miralles
    Abstract: Time series modeling by the use of automatic signal extraction methods has been widely studied and used in different contexts of economic analysis. The methodological innovation of ARIMA / SARIMA models estimation made significant contributions to the understanding of temporal dynamics of events, even when the time structure was apparently irregular and unpredictable. The popularity of these models was reflected in the development of applications that implemented algorithms that automaticaly extract temporal patterns of the series and provide a reasonably accurate adjustment by a mathematical model, making it also in a quick and consistent manner. One of the most common use of these programs is in the univariate analysis context, to achieve its filtering for its posterior use in a multivariate structure. However, there is significant untapped potential in the results provided by those applications. In this paper there's a description of the methodology with which the use of TRAMO SEATS and X13 ARIMA is implemented directly in a multivariate structure. Specifically, we have applied data analysis techniques related to artificial neural networks. UNder the neural networks philosophy, events are conceived as linked nodes which activate or not depending on the intensity of an imput signal. At that point come into play STRETCH or X13. To illustrate the methodology and the use of the model, series of health-related time are used, and a consistent model able to "react" to the dynamic interrelations of the variables considered is described. Standard panel data modeling is included in the example and compared with the new methodology.
    Keywords: Spain, Germany, Netherlands, Sweeden, Belgium., Modeling: new developments, Forecasting and projection methods
    Date: 2015–07–01
  5. By: Pilar Campoy-Muñoz (Universidad Loyola Andalucía); Manuel Alejandro Cardenete (Universidad Loyola Andalucía); María del Carmen Delgado (Universidad Loyola Andalucía)
    Abstract: Programs to reduce employers‟ Social Security contributions are being widely discussed in both the political arena and academic forums as tools for promoting economic growth and boosting employment. This paper employs a Computable General Equilibrium model to assess the economic impact on the national economy of the proposals from the Spanish Confederation of Enterprise Organizations about reducing the Social Security contributions paid by employers. The results show that the proposals fail to reduce unemployment when they are combined with compensation by revenues from indirect taxes; whereas compensation through increased personal income taxes shows positive results on unemployment in exchange for decreases in private consumption.
    Keywords: Computable general equilibrium models; Social security contributions; Tax reforms; Fiscal consolidation
    JEL: C68 H20 H32
    Date: 2016–01
  6. By: ARMAN MAZHIKEYEV; Huw Edwards
    Abstract: A period of new Eurasian Regional Integration has already begun in parts of the For- mer Soviet Union. Following the experience of European Union, the `troika' (namely, Kaza- khstan, Russia and Belarus) are working toward establishment of a Eurasian Union. The troika have taken serious steps, in a speedy manner, toward the formation of an Eurasian region (the Eurasian Customs Union, the CIS Free Trade Agreement, and the Single Eco- nomic Space, and the Eurasian Economic Union). However, whether all the members and the entire region will achieve the gains from fast EU like integration and the union will be marked as successful one is yet being questioned. Studies believe that the union has more of a political rather than an economic motivation, that could result in negative economic externalities rather then gains.This study attempt to assess the impact of asymmetry and symmetry in bargaining in deeper Eurasian regional integration. The analysis carried out using the modern multi- country multi-sector CGE approach with suitable specications with a number of trade costs measures using the gravity concept. The novelty in this study is the use of implicit trade costs obtained using Overall Trade Cost Index (Novy [69]) which then has been decomposed into policy (tari and non-tari), non-policy (markups and value added costs) and transport costs econometrically. We rstly performed shallow integration scenario simulation with actual changes in tari rates from 2009 to (expected rates for) 2015 of the troika, rest of CIS and aggregate ROW multilaterally. Further we used Overall Trade Cost Indices for EU and CIS countries from the WB-ESCAP trade costs database to make assumptions regarding multilateral changes in NTBs, border, transport and other costs in two deeper integration scenarios of equal and unequal (bias toward Russia) treatment of members.Based on the results of simulation work, we can conclude that if there will be equal treatment of members of the new integration, the members will likely benet from the gains and positive externalities of deeper integration in the future. However, if we take account of the Russian bargaining power and future asymmetric treatment of members, smaller members Kazakhstan, Belarus, plus other joiners are less likely receive expected gains. This work does not take account of other changes in policies (Russia's WTO assessment, sanctions against Russia by the Western Bloc, impact of situations in Ukraine-Russian borders etc.) but changes in trade costs (NTBs, taris, transport and border costs and value added costs).
    Keywords: UK, Modeling: new developments, General equilibrium modeling
    Date: 2015–07–01
  7. By: Yanshuo Zhu; Wang Zheng; Zhu Yongbin; Shi Ying1
    Abstract: The anthropogenic-induced climate change is mainly caused by the fossil energy and the effect of the energy evolution to the emission reduction is what the paper key concerns. In ensuring the economic costs as the most important factor of the goal, fully consider the substitution effect between various energy technologies and impact of technological advances in the evolution of energy mix. With the flexible connection of the equilibrium between energy supply and demand, we constructed a hybrid model with the optimal balanced growth structure and the energy dynamic optimization. The simulation is consisting of tow parts, (1)China's energy structure evolutionary trend under the unconstrained freedom emissions(2)Carbon emissions and energy structure evolutionary trend based on carbon tax policy.
    Keywords: China, Energy and environmental policy, Energy and environmental policy
    Date: 2015–07–01
  8. By: Ramón E. Key-Hernández; Claudina Villarroel
    Abstract: This article aims to simulate the effects of an orthodox adjustment (in place) vs one unorthodox adjustment (counterfactual), assessing the external component to both types of programs. In the case of the heterodox adjustment it refers to adjustment via quantitative restriction on imports (setting quantities). For the orthodox adjustment it refers to an adjustment of the exchange rate (setting prices).The model includes 10 activities: agriculture, oil and refining, mining, manufacturing, electricity, construction, trade, transport and communications, financial services, and other services. To model the effects of import restrictions, a condition of complementarity is introduced in a standard CGE model as Hosoe et al. (2010). The income generated by this restriction is assigned to the corporate sector. 1.If the government's goal is to reduce the trade deficit / increase the trade surplus orthodox adjustment via prices proves to be more efficient than heterodox adjustment via quantities. This is in terms of lower loss of global economic activity and loss of consumer utility. 2.The adjustment via quantities (restriction on imports) is not sustainable over time because have the following effects: drop in tax revenues and stagnating exports. 3.The adjustment via prices (exchange rate adjustment) generates the foundations of the post-recovery over time because it produces: increased tax revenues and boosting exports.
    Keywords: Venezuela, General equilibrium modeling, Developing countries
    Date: 2015–07–01
  9. By: Rossella Bardazzi (Dipartimento di Scienze per l'Economia e l'Impresa); Leonardo Ghezzi
    Abstract: The Eurozone crisis has exposed several weaknesses of the European Monetary Union economies. Slow productivity growth and competitiveness losses on international markets have been growing since the beginning of the 2000s and became evident during the recent downturn. A policy action to increase capital stock accumulation through investment could generate a double dividend: increasing domestic demand and stimulating the competitive position of European economies on international markets. This paper aims to assess the impact of an expansionary capital stock policy on the external competitiveness of EU. The analysis employs a Bilateral Trade Model built at INFORUM with several distinguishing characteristics: a comprehensive bilateral dataset, econometric estimation of key parameters, and emphasis on sectoral details. Our findings show that a capital stock increase is effective in enhancing EU trade shares although differences between sectors and markets are significant in two key destinations of European commodity exports: China and the US.
    Keywords: Bilateral trade, multisectoral modelling, EU competitiveness, policy simulation
    JEL: F14 C51 C55
    Date: 2017
  10. By: Pereira, Alfredo; Pereira, Rui
    Abstract: In this paper we analyze the budgetary, economic, distributional and environmental effects of a permanent increase in Portugal of the value added tax on electricity spending. The analysis in conducted in the context of a new multi-sector and multi-household dynamic general equilibrium model of the Portuguese economy. Simulation results suggest that a permanent increase in the VAT on electricity from 6% to 23% has positive budgetary and environmental effects but both come at the cost of detrimental economic and distributional effects. As economic performance in Portugal improves and the public budgetary situation becomes less constraining, it is inevitable that pressure will mount for this increase in the VAT rate on electricity to be reversed. This mixed bag of results provides an important element in this debate. Reverting to a VAT tax rate of 6% on electricity, would improve economic performance and have positive distributional effects. From this perspective such reversion would be desirable. The question is then whether or not the public budget can somehow compensate for the loss of revenues in a way that would not eliminate the positive economic and distributional effects of such reversion.
    Keywords: Value Added Tax on Electricity, Dynamic Multi-Sector General Equilibrium, Portugal
    JEL: D58 H24 Q43
    Date: 2017–03–15
  11. By: Gbadebo Oladosu
    Abstract: Oil remains the top resource for meeting global energy requirements, and is one of the most widely traded commodities. With different levels of petroleum production, exports and consumption, developments in the oil market have far-reaching and varied consequences across regions. Policymakers and analyst alike are interested in understanding the sources of price movements, and its implications for the economy. This paper evaluates the regional economic impacts of oil markets changes across the globe. Simulations are performed with the energy policy in general equilibrium (EPGE) model, a 19-region and 49-sector global dynamic economic model with a 2004 base year. The simulations evaluate a number of scenarios that include changes oil demand and supply, as well as other sources of shocks to the oil price. Results highlight economic impacts in terms of changes in the gross domestic product, sectoral outputs and prices, employment and other indicators of economic performance.
    Keywords: Global, Energy and environmental policy, General equilibrium modeling
    Date: 2015–07–01
  12. By: Sherman Robinson; Shantayanan Devarajan , Yazid Dissou , Delfin S. Go
    Abstract: We develop a DSGE model to analyze and derive simple budget rules in the face of volatile public revenue from natural resources in a low-income country. We simulate the impact of resource windfalls and policy responses in a model that captures both the implications of current decisions on future growth and welfare, and the uncertainty that is intrinsic to resource prices. We ask: What rules-of-thumb does dynamic stochastic general equilibrium (DSGE) analysis provide about budgetary spending of uncertain and fluctuating resource windfalls, especially in low-income and newly resource rich developing?Our simulation results suggest three policy lessons or rules of thumb. (1) When a resource price change is positive and temporary, the best strategy is to save the revenue windfall in a sovereign fund, and use the interest income from the fund to raise citizens’ consumption over time. This strategy is preferred to investing in public capital domestically, even when private investment benefits from an enhanced public capital stock. (2) In the presence of a negative temporary resource price change however, the best strategy is to cut public investment. (3) In the presence of persistent (positive and negative) shocks, the best strategy is to combine both public investment and saving abroad in a balanced regime that provides a natural insurance against both types of price shocks.
    Keywords: Niger, Optimization models, General equilibrium modeling
    Date: 2015–07–01
  13. By: Jan Brockhaus; Jan Brockhaus; Matthias Kalkuhl
    Abstract: After the world food crisis in 2007/2008, calls for international grain reserves (ACTION, 2013) or public emergency reserves of grain (ICTSD, 2011) have increased. Despite a large amount of literature on optimal grain reserves in a single country (compare e.g. Gouel, 2013; Williams & Wright, 1991), there is currently a research gap in modeling the benefits from cooperation of different countries with respect to emergency reserves. This work provides a theoretical analysis of the conditions under which storage cooperation is beneficial for both participating countries. The analysis uses the competitive storage model for three countries. The model specification follows Gouel (2011) and Gouel and Jean (2012) but differs in explicitly including three countries. Stockholders and producers are risk-neutral and profit maximizing, act competitively and have rational expectations. Competitive trade occurs until there are no more possibilities for spatial arbitrage while consumption is isoelastic. The simulations are conducted in Matlab and to solve the model, the CompEcon toolbox (Fackler and Miranda, 2011) and the RECS solver (Gouel, 2013b) are used. An individual and a common emergency reserve of two countries are included as well as private storage based on rational expectations. The latter is crucial to analyze crowding out effects whereas the third country is needed to investigate how the two countries are affected by the rest of the world. The stock releases may be triggered by high prices or production shocks with, in practice, the former being more easily observable and less independent of global trends and dynamics than the latter. We expect trading costs and the correlation of production shocks to be the crucial parameters which influence the benefits obtained from a common reserve. When the emergency reserve is touched because of a world-wide supply shortage, we expect that the countries have to insulate themselves through tariffs from the world market to ensure the benefits from the reserves do not leak into the world market. In contrast, when no or only local supply shocks arise, countries benefit from free trade and may be willing to commit to long-term free trade agreements.
    Keywords: Theoretical study which is not (yet) applied to a specific country, Agricultural issues, Microsimulation models
    Date: 2015–07–01

This nep-cmp issue is ©2017 by Stan Miles. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.