nep-cmp New Economics Papers
on Computational Economics
Issue of 2017‒04‒16
fourteen papers chosen by
Stan Miles
Thompson Rivers University

  1. Income Inequality Effects of Ukraine’s Trade Liberalization with the EU. Are there 'two Ukraines'? By Miriam Frey
  2. How large and uncertain are costs of 2030 emission reduction target for the European countries? Sensitivity analysis in a global CGE model By Magdalena Zachlod-Jelec; Jakub Boratyński
  3. Agent-Based Model Calibration using Machine Learning Surrogates By Francesco Lamperti; Andrea Roventini; Amir Sani
  4. Using a CGE Model for analyzing the Macroeconomic impact of the Grand Paris Express project on the Ile-de-France Region By HAYKEL HADJ SALEM; HAYKEL HADJ SALEM; HUBERT JAYET; MOEZ KILANI; QUENTIN DAVID; HAKIM HAMMADOU; Aboulkacem El-Mehdi
  5. The European Union–West Africa Economic Partnership Agreement: By Bouët, Antoine; Laborde Debucquet, David; Traoré, Fousseini
  7. Sensitivity of Modeling Results to Technological and Regional Details: The Case of Italy’s Carbon Mitigation Policy By Gabriele Standardi; Yiyong Cai; Sonia Yeh
  8. A CGE Analysis of the MacroeconomicEffects of Carbon Dioxide Emission ReductionontheAlgerian Economy By touitou mohammed
  9. Estimating long term structural and educational changes of labour demand using CGE model – case of Slovakia By Marek Radvansky; Tomas Miklosovic
  10. Intra-regional versus Inter-regional Trade Liberalization for Central America By Adolfo Cristobal Campoamor; Olexandr Nekhay; Manuel Alejandro Cardenete Flores; Pedro Caldentey del Pozo
  11. Faraway, so close : coupled climate and economic dynamics in an agent-based integrated assessment model By Francesco Lamperti; Giovanni Dosi; Mauro Napoletano; Andrea Roventini; Sandro Sapio
  12. Social Network Structure and The Trade-Off Between Social Utility and Economic Performance By Katarzyna Growiec; Jakub Growiec; Bogumil Kaminski
  13. FIEMS: Fast Italian Energy Market Simulator By Matteo Gardini; Marco Diana
  14. Solving DSGE models with stochastic trends By Sergei Seleznev

  1. By: Miriam Frey
    Abstract: This paper analyzes the effects of Ukraine's trade liberalization with the EU on income inequality using a computable general equilibrium (CGE)-microsimulation model for Ukraine. Special focus is thereby given to between- and within-parts income inequality to study whether the Western and the Eastern part of Ukraine are affected differently. Even though overall income distribution effects are rather small, Ukraine's unilateral tariff elimination turns out to act more on the within- rather than on the between-parts income inequality. Taking into account the distributional effects of trade liberalization requires an appropriate modeling approach. Thus, a computable general equilibrium (CGE) model is linked with a microsimulation model for Ukraine in a sequential way (top-down approach). This means that Ukraine’s trade integration with the EU is first simulated in the CGE model to obtain changes in factor returns and prices. In the second step, those are used as exogenous variables in the microsimulation model to simulate the effects on endogenous variables like labor income and labor market status. Based on this outcome, the main variable of interest - real income per equalized person - is calculated for all households in the sample. As indicated by the Gini index, overall income distribution effects in Ukraine are rather small. However, looking at the impact on income inequality measured by the Theil index gives some interesting insights as it allows for a decomposition across the western and the eastern part of Ukraine. The biggest share of total income inequality in Ukraine is explained by within-parts inequality. Accordingly, trade liberalization affects total income inequality in Ukraine only via its impact on within-parts inequality. It turns out that the more relevant grouping criterion to identify between-groups income inequality effects is a rural/urban rather than a west/east division of households. In this respect, the answer to the initial question whether there are 'two Ukraines' must be 'no'.
    Keywords: Ukraine, General equilibrium modeling, Microsimulation models
    Date: 2016–07–04
  2. By: Magdalena Zachlod-Jelec; Jakub Boratyński
    Abstract: CGE models are popular tools for assessing the impact of economic (climate and energy, specifically) policy on the economy, yet the simulation results are sensitive to parameters assumed by the modeler. However, econometric evidence on those parameters available in the literature is often scarce or ambiguous, as well as there is difficulty in finding results tailored to a specific CGE model (with its specific sectoral and regional disaggregation, nesting structure production functions etc). In practice this makes a choice of parameter values more or less arbitrary, and in fact in many cases the modelers simply follow the perhaps equally arbitrary choices made by other authors. Although such an approach does not imply that simulation results are meaningless, it calls for at least a clear communication of uncertainties to the reader. In the paper we present mean results of simulation of the 2030 emission reduction target for the EU countries together with standard deviations of mean results. We also discuss sources of parameters uncertainty. In order to investigate model parameters uncertainty we conduct systematic sensitivity analysis based on Stroud's (1957) Gaussian quadratures in a static global CGE model. By “systematic” we mean that alternative values of parameters are picked in a systematic way, i.e. they are determined by means of some specific method in order to explore the whole domain of plausible values. Our preliminary findings can be summarized as follows. First, uncertainty of model simulation results driven by the uncertainty in assumed elasticities is quite remarkable with double-digit variation coefficients in many cases. Second, the uncertainty is larger with respect to non-energy parameters than to energy parameters. Finally, there is a clear pattern with mostly the New Member States experiencing relatively high cost of emissions reduction in terms of GDP and consumption loss. In the extreme case of strictly rigid energy mixes (no substitution at an industry level), these costs roughly double.
    Keywords: European Union countries, General equilibrium modeling, Energy and environmental policy
    Date: 2016–07–04
  3. By: Francesco Lamperti (Laboratory of Economics and Management (LEM) - Scuola Superiore Sant'Anna [Pisa]); Andrea Roventini (OFCE - Observatoire Français des Conjonctures économiques - Institut d'Études Politiques [IEP] - Paris - Fondation Nationale des Sciences Politiques [FNSP], Laboratory of Economics and Management (LEM) - Scuola Superiore Sant'Anna [Pisa]); Amir Sani (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Taking agent-based models (ABM) closer to the data is an open challenge. This paper explicitly tackles parameter space exploration and calibration of ABMs combining supervised machine-learning and intelligent sampling to build a surrogate meta-model. The proposed approach provides a fast and accurate approximation of model behaviour, dramatically reducing computation time. In that, our machine-learning surrogate facilitates large scale explorations of the parameter-space, while providing a powerful filter to gain insights into the complex functioning of agent-based models. The algorithm introduced in this paper merges model simulation and output analysis into a surrogate meta-model, which substantially ease ABM calibration. We successfully apply our approach to the Brock and Hommes (1998) asset pricing model and to the " Island " endogenous growth model (Fagiolo and Dosi, 2003). Performance is evaluated against a relatively large out-of-sample set of parameter combinations, while employing different user-defined statistical tests for output analysis. The results demonstrate the capacity of machine learning surrogates to facilitate fast and precise exploration of agent-based models' behaviour over their often rugged parameter spaces.
    Keywords: meta-model,agent based model,surrogate,calibration,machine learning
    Date: 2017–04–03
    Abstract: new Computable General Equilibrium (CGE) Model aiming at measuring the long term global impact of the so called Grand Paris Express project on the French region Ile-de-France. The impacts of this new transport infrastructure will be broader than urban transportation, and it is expected to have wider impacts on employment, real estate market and regional attractiveness of Paris. To evaluate the magnitude of these impacts, we develop a CGE model of the Region Ile-de-France with several innovative features. The paper will make a detailed presentation of the general features of the model and of a first version which is mainly focusing on the representation of the public transport sector. In a first section, we present the Social Accounting Matrix (SAM) we have been developing for the model, which some specific features linked to the representation of the transportation system and the inclusion of the land markets. Then, we will present the base structure of the model: the production and the link between supply and demand of each product, flows of trade between the Ile-de-France region and the rest of the word, the incomes and expenditure of the various economic agents and the price determination, the market for public transport. In the next section we perform simulation analysis where we introduce a shock in transportation sector and evaluate its impact on transportation trend and how it spreads in the other sectors of the economy. The objective of this analysis is to identify public policies that can improve the implementation of the Grand Paris Express. These policies will be related to transportation reforms itself, but also to real estate market and possibility to labor market. The last section concludes with the main findings.
    Keywords: pile de France region, France, General equilibrium modeling, Regional modeling
    Date: 2016–07–04
  5. By: Bouët, Antoine; Laborde Debucquet, David; Traoré, Fousseini
    Abstract: Despite recent modifications, the Economic Partnership Agreement (EPA) between the European Union (EU) and West African (WA) countries is still being criticized for its potential detrimental effects on WA countries. This paper provides updated evidence on the impact of the EPA on these countries. A dynamic multicountry, multisector computable general equilibrium trade model with modeling of the dual-dual economy and with a consistent tariff aggregator is used to simulate a series of new scenarios that include updated information on the agreement. We also go beyond estimating macrolevel economic effects to analyze the impacts on poverty. The policy simulation results show that the implementation of the EPA between the EU and WA countries would have marginal but positive impacts on Burkina Faso and Côte d’Ivoire and negative impacts on Benin, Ghana, Nigeria, Senegal, and Togo. The impact on poverty indicators in Ghana and Nigeria would be marginal. From the perspective of WA countries, this study supports the view that recent EU concessions are not sufficient and that domestic fiscal reforms are needed in WA countries themselves.
    Keywords: EUROPEAN UNION [INTERNATIONAL AGREEMENTS]; GHANA; WEST AFRICA; AFRICA SOUTH OF SAHARA; AFRICA; BURKINA FASO; COTE D'IVOIRE; BENIN; NIGERIA; SENEGAL; TOGO, economics; trade; trade agreements; poverty; indicators; impact assessment; fiscal policies; reforms, regional trade agreements; computable general equilibrium model; dual-dual model, F11 Neoclassical Models of Trade; F13 Trade Policy, International Trade Organizations; F15 Economic Integration,
    Date: 2017
  6. By: Leszek Kasek; Jakub Boratyński; Leszek Kąsek
    Abstract: Oil prices on global markets have plunged from US$115 per barrel in mid-June of 2014 to US$48 at end-January 2015, and around US$30 in January 2016. Oil prices that remain low over the long-term would give a positive boost to the global economy, but the effects will vary across countries. While net oil (fossil fuel) importers are expected to win (Europe, Japan, China, India), net oil exporters (OPEC countries, EFTA, Russia, Canada) are set to lose. However, in the EU, with carbon emission constraints in place, the possible benefits for oil users will be restricted because of climate regulations. This paper quantifies the economic effects of lower fossil fuel prices in the 2020 time horizon, modeled as a supply shock, and emphasizes their interaction with EU climate policy. The impact assessment of the oil price shock was conducted using a multi-county, multi-sector computable general equilibrium (CGE) model, PLACE, maintained by the Center for Climate Policy Analysis (CCPA) in Warsaw. The effects of a permanent 60 percent oil price shock are assessed against a baseline scenario through 2020 based on the IEA 2012 World Energy Outlook assuming a high oil price scenario of US$118 in 2015 and US$128 in 2020 (both in 2010 constant prices) and correlated price changes of coal (by 50 percent), and natural gas (by 30 percent). Model simulations show that, first, oil exporters will suffer substantial double-digit welfare losses through 2020 due to significant deterioration in their terms of trade. Second, the EU, as a large oil importer, will benefit significantly from lower oil prices, with the New Member States being relatively better off, as a consequence of their relatively high energy intensity. Third, if the assumed permanent oil price shock occurs at half the level of the headline 60 percent scenario (proxying for US dollar appreciation or reflecting a rebound in oil prices from their early 2015 levels through 2020), welfare effects will be smaller and less than proportional for most countries. Finally, in the EU, the existing emissions cap constrain the use of cheaper fossil fuels and limits the welfare increase by about 0.5 percentage points.
    Keywords: EU countries and key global regions, Energy and environmental policy, General equilibrium modeling
    Date: 2016–07–04
  7. By: Gabriele Standardi; Yiyong Cai; Sonia Yeh
    Abstract: This paper carries out a systematic assessment on the sensitivity of Computable General Equilibrium models to technological and geographical scales in evaluating the economic impacts of carbon mitigation policies. We start with a basic version of a global CGE model and database, which considers Italy as one single economic unit and has one technology in the electricity sector. We then disaggregate the electricity sector into a bundle of various generation technologies, and split Italy into 20 sub-national regions to create more spatially disaggregated versions of the model. The comparison across different model specifications enables us to quantify the importance of technological and regional disaggregation in response to a given policy by carefully laying out the causal inferences that drive the differences of results, and quantitatively assessing the impacts on the results within the realm of the climate policies that we examined in this study. Taking Italy as an example, we find that the estimation for carbon price and economic cost of a de-carbonization pathway by a model with technological and regional details can be lower than a model without such details by up to 40%. Additionally, the effect of representing regional details appears to be several times more important than the effect of representing the details of electricity technology in both the estimated carbon prices and the estimated impacts on electricity production. Our results for Italy highlight the importance of modeling uncertainties of these two key assumptions, which should be appropriately acknowledged when applying CGE models for policy impact assessment. Our conclusions can be generalized to different countries and policy scenarios not in terms of magnitudes of results but in terms of economic explanation. In particular, intra-national trade and the sub-national sectoral/technological specialization are important variables to understand the economic dynamics behind these outcomes.
    Keywords: Italy, General equilibrium modeling, Energy and environmental policy
    Date: 2016–07–04
  8. By: touitou mohammed
    Abstract: This study analyzes the macroeconomic effects of limiting carbon emissions using computable general equilibrium (CGE) model in the Algerian economy. Doing so, we developed an environmental computable general equilibrium model and investigate carbon tax policy responses in the economy applying exogenously different degrees of carbon tax into the model. Three simulations were carried out using anAlgerian Social Accounting Matrix. A static environmental computable general equilibrium (CGE) model of the Algerian economy is constructed for this study . The model consists of tenindustries, one representative household, three factor production, and rest of the world. The CGE technique is an approach that models the complex interdependent relationships among decentralized actors or agents in an economy by considering the actual outcome to represent a ‘general equilibrium’. Briefly, the technique expresses that the ‘equilibrium’ of an economy is reached when expenditures by consumers exactly exhaust their disposable income, the aggregate value of exports exactly equals import demand, and the cost of pollution is just equal at the marginal social value of damage that it causes. The carbon tax policy illustrates that a 1.52% reduction of carbon emission reduces the nominal GDP by 1.26% and exports by 3.04%; a 2.67% reduction of carbon emission reduces the nominal GDP by 1.92% and exports by 4.86%and a 3.72% reduction of carbon emission reduces the nominal GDP by 3.79% and exports by 6.90%. Imposition of successively higher carbon tax results in increased government revenue from baseline by 23.68%, 50.18% and 76.38% respectively. However, fixed capital investment increased in scenario 1a (1st) by 0.23% but decreased in scenarios 1b (2nd) and 1c (3rd) by 0.35% and 2.03% respectively from the baseline. According to our findings policy-makes should consider initial (1st) carbon tax policy. This policy results in achieving reasonably good environmental impacts without losing the investment, fixed capital investment, investment share of nominal GDP and government revenue.
    Keywords: ALGERIA, Energy and environmental policy, General equilibrium modeling
    Date: 2016–07–04
  9. By: Marek Radvansky; Tomas Miklosovic
    Abstract: Main goal of the paper is application of augmented recursive-dynamic CGE model to provide long-term forecast of labour demand. Estimation of structural and educational changes in labour demand up to 2025 requires relatively complex approach. Applied CGE model is core part of described exercise. Available datasets for Slovakia allow providing currently most detail estimation of structural changes by 60 sectors. Additionally, employment structure is divided by 5 levels of formal education (instead of more problematic occupation segmentation). Main driver of changes in demand by education in applied model are wage and productivity development. Main inputs to recursive dynamic CGE models beside the SAM matrix are information on indicators of long term macroeconomic. These are derived from applied macroeconomic econometric error-correction model. One of the main challenges was to use combination of LFS and national accounts (ESA) data on structure of employment for better utilization of obtained results. Additional use of LFS information about age and education structure within sectors leads to estimation of expansion, replacement and total demand to every individual sector. Main results of (partially restricted) labour demand are essential part for identifying possible imbalances and shortages on labour market. To quantify the demand for labour of macroeconomic growth will be used computational general equilibrium (CGE) model (see above). Long run growth will be estimated via macroeconomic econometric error correction model. The expansion, replacement and total demand will be compute via cohort stock – flow model. Results and model application are result of long term development of CGE and macroeconomic models within Institute of Economic Research. First estimations indicates the growth of expansion labour demand at level slightly above 100 thousand workers between 2015 and 2025 in Slovakia (4,1 %). The results of expansion labour demand are based on positive expected growth of the Slovak economy. When we consider the replacement demand, the total labour demand is about 900 thousand workers between 2015 and 2025. Intensity of replacement demand will differ in relation to age structure of working population within sectors. Replacement demand represents size of more than one third of current Slovak labour market, which implies possibility of significant structural changes. Slovak economy is split to the 58 sectors where the most of them will increase in output or labour demand. But some of them will decrease in output and labour demand like agriculture. Obtained results indicates, that the highest demand will be for higly educated workers, thus shift toward more knowledge economy. On the other hand, there are significant shortages of skilled secondary workers, which may indicate problems with vocational education system. Results will be further discussed in the paper.
    Keywords: Slovakia. Results are applicable to the most CEE countries. , General equilibrium modeling, Labor market issues
    Date: 2016–07–04
  10. By: Adolfo Cristobal Campoamor; Olexandr Nekhay; Manuel Alejandro Cardenete Flores; Pedro Caldentey del Pozo
    Abstract: The countries in the Central American region (henceforth CA: Guatemala, Honduras, El Salvador, Nicaragua, Costa Rica and Panama) have signed multiple trade agreements in the recent past. Sometimes the whole CA worked as a unified agent, for instance vis a 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. That happens because most of the CA world exports are agricultural goods or products intensive in the use of natural resources. On the other hand, in the intra-regional markets these countries exchange more elaborate preparations (organic agents, medicines, electrical devices, specialized clothing,,...). 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 in the benchmark model the current level of tariffs within CA, while reducing with the shock the barriers to the inter-regional transactions with the United States. Our intention is then advising the CA authorities as to which range of trade negotiations should be prioritized today. We will adopt as a modelling tool a perfectly competitive, CGE model, in combination with the GTAP sectoral database, which also contemplates the degree of protection in every productive sector. We expect our results will allow the CA authorities to prioritize the removal of intra-regional trade distortions, as opposed to the inter-regional ones, given their different capacity to insert these countries into the international value chains.
    Keywords: Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, United States, General equilibrium modeling, Developing countries
    Date: 2016–07–04
  11. By: Francesco Lamperti (Université Panthéon-Sorbonne - Paris 1 (UP1)); Giovanni Dosi (Laboratory of Economics and Management); Mauro Napoletano (Observatoire français des conjonctures économiques); Andrea Roventini (Laboratory of Economics and Management); Sandro Sapio (Universita degli studi di Napoli "Parthenope" [Napoli])
    Abstract: In this paperwe develop the first agent-based integrated assessment model, which offers an alternative to standard, computable general-equilibrium frameworks. The Dystopian Schumpeter meeting Keynes (DSK) model is composed of heterogeneous firms belonging to capital-good, consumption-good and energy sectors. Production and energy generation lead to greenhouse gas emissions, which affect temperature dynamics in a non-linear way. Increasing temperature triggers climate damages hitting, at the micro-level, workers’ labor productivity, energy efficiency, capital stock and inventories of firms. In that, aggregate damages are emerging properties of the out-of-equilibrium interactions among heterogeneous and boundedly rational agents. We find the DSK model is able to account for a wide ensemble of micro and macro empirical regularities concerning both economic and climate dynamics. Moreover, different types of shocks have heterogeneous impact on output growth, unemployment rate, and the likelihood of economic crises. Finally, we show that the magnitude and the uncertainty associated to climate change impacts increase over time, and that climate damages much larger than those estimated through standard IAMs. Our results point to the presence of tipping points and irreversible trajectories, thereby suggesting the need of urgent policy interventions.
    Keywords: Climate change; Agent-based model; Integrated assessment; Macroeconomic dynamics; Climate damages
    JEL: C63 Q40 Q50 Q54
    Date: 2017–04
  12. By: Katarzyna Growiec; Jakub Growiec; Bogumil Kaminski
    Abstract: Based on a novel computational multi-agent model, we identify the keymechanisms allowing the social network structure, summarized by four key socialcapital dimensions (network degree, centrality, bridging and bonding social capital), to affect individuals' social trust, willingness to cooperate, social utility and economicperformance. We then trace how the individual-level outcomes aggregate up to thesociety level. Model setup draws from socio-economic theory and empirical findings based on our novel survey dataset. Results include aggregate-level comparative staticsand individual-level correlations. We find, inter alia, that societies that either arebetter connected, exhibit a lower frequency of local cliques, or have a smaller share offamily-based cliques, record relatively better economic performance. As long as familyties are sufficiently valuable, there is a trade-off between aggregate social utility andeconomic performance, and small world networks are then socially optimal.
    Keywords: social network structure, social trust, willingness to cooperate, economicperformance, computational multi-agent model
    JEL: C63 D85 J31 L14 Z13
    Date: 2017–03
  13. By: Matteo Gardini; Marco Diana
    Abstract: The article describes the algorithm used to define the electricity price in day-ahead and itraday energy markets in Italy. Details of Matlab implementation of one of its simplified versions, capable of producing good results in a extremely short time, are then provided and numerical results are discussed.
    Date: 2017–03
  14. By: Sergei Seleznev (Bank of Russia, Russian Federation)
    Abstract: We propose an algorithm for solving DSGE models with stochastic trends. Several implementations help us to solve the model with a small number of stochastic trends in the absence of a balanced growth path fast and allow us to control the accuracy of approximation in a certain range. Taking into account the fact that many implementations can be easily parallelized, this algorithm enables the estimation of models in the absence of a balanced growth path. We also provide a number of possible methods for estimation.
    Keywords: Non-stationary DSGE, stochastic trends, Smolyak’s algorithm, perturbation method.
    JEL: C61 C63
    Date: 2016–09

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