nep-cmp New Economics Papers
on Computational Economics
Issue of 2017‒06‒25
twelve papers chosen by
Stan Miles
Thompson Rivers University

  1. Deep Learning in (and of) Agent-Based Models: A Prospectus By Sander van der Hoog
  2. STAGE_DEV. A variant of the STAGE model to analyse developing countries By Emerta Aragie; Hasan Dudu; Emanuele Ferrari; Alfredo Mainar; Scott McDonald; Karen Thierfelder
  3. The Size of Fiscal Multipliers and the Stance of Monetary Policy in Developing Economies By Jair N. Ojeda-Joya; Oscar E. Guzman
  4. ABBA: An Agent-Based Model of the Banking System By Jorge A. Chan-Lau
  5. An Integrated General Equilibrium Model for Evaluating Demographic, Social and Economic Impacts of Transport Policies By Özhan Yılmaz; Ebru Voyvoda
  6. Simulation Optimization through Regression or Kriging Metamodels By Kleijnen, J.P.C.
  7. Speed and biases of Fourier-based pricing choices: A numerical analysis By Ricardo Cris\'ostomo
  8. Child Care Subsidies, Quality, and Optimal Income Taxation By Bastani, Spencer; Blomquist, Sören; Micheletto, Luca
  9. Adoption and Diffusion of Micro-Grids in Italy. An Analysis of Regional Factors Using Agent-Based Modelling By Francesco Pasimeni
  10. Unemployment and Income-Distribution Effects of Economic Growth: A Minimum-Wage Analysis with Optimal Saving By Richard A. Brecher; Till Gross
  11. Singular Fourier-Pad\'e Series Expansion of European Option Prices By Tat Lung; Chan
  12. An approach to the structural features of the socio-economic activity of a country based on a Social Accounting Matrix.Evidences and multiplier effects on distribution of income. By Santos, Susana

  1. By: Sander van der Hoog
    Abstract: A very timely issue for economic agent-based models (ABMs) is their empirical estimation. This paper describes a line of research that could resolve the issue by using machine learning techniques, using multi-layer artificial neural networks (ANNs), or so called Deep Nets. The seminal contribution by Hinton et al. (2006) introduced a fast and efficient training algorithm called Deep Learning, and there have been major breakthroughs in machine learning ever since. Economics has not yet benefited from these developments, and therefore we believe that now is the right time to apply Deep Learning and multi-layered neural networks to agent-based models in economics.
    Date: 2017–06
  2. By: Emerta Aragie (FAO); Hasan Dudu (European Commission – JRC); Emanuele Ferrari (European Commission – JRC); Alfredo Mainar (European Commission – JRC); Scott McDonald; Karen Thierfelder
    Abstract: This document provides a description of the comparative static version of STAGE_DEV single-country computable general equilibrium (CGE) model, which is a variant/development of the STAGE 2 single country CGE model. This model embeds several new distinctive features which make this version tailored for the ex-ante impact analysis of national policies in developing countries. The model is designed for calibration using a reduced form of a Social Accounting Matrix (SAM) that broadly conforms to the UN System of National Accounts, which for the purpose of this study has been enriched with relevant satellite accounts.
    Keywords: CGE, modelling, agriculture, developing countries
    JEL: C68 Q18
    Date: 2017–05
  3. By: Jair N. Ojeda-Joya; Oscar E. Guzman
    Abstract: In this paper we estimate the effect of government consumption shocks on GDP using a panel of 21 developing economies. Our goal is to better understand the reasons for the low fiscal multipliers found in the literature by performing estimations for alternative exchange rate regimes, business-cycle phases, and monetary policy stances. In addition, we perform counterfactual simulations to analyze the possible gains from fiscal-monetary policy coordination. The results imply that government consumption shocks are usually followed by monetary policy tightening in developing economies with flexible regimes. Our simulations show that this reaction partially explains the presence of low fiscal multipliers in these economies. On the other hand, we find that government consumption shocks imply higher multipliers in developing economies during fixed regimes, economic booms or monetary expansions. In particular, implementing fiscal programs during monetary expansions seems to improve significantly their economic stimulus.
    Keywords: Fiscal Policy, Monetary Policy, Structural Vector Autoregression, Exchange Rate Regime, Panel VAR
    JEL: E62 E63 F32
    Date: 2017–06–13
  4. By: Jorge A. Chan-Lau
    Abstract: A thorough analysis of risks in the banking system requires incorporating banks’ inherent heterogeneity and adaptive behavior in response to shocks and changes in business conditions and the regulatory environment. ABBA is an agent-based model for analyzing risks in the banking system in which banks’ business decisions drive the endogenous formation of interbank networks. ABBA allows for a rich menu of banks’ decisions, contingent on banks’ balance sheet and capital position, including dividend payment rules, credit expansion, and dynamic balance sheet adjustment via risk-weight optimization. The platform serves to illustrate the effect of changes on regulatory requirements on solvency, liquidity, and interconnectedness risk. It could also constitute a basic building block for further development of large, bottom-up agent-based macro-financial models.
    Date: 2017–06–09
  5. By: Özhan Yılmaz (PhD Candidate, Department of Economics, Middle East Technical University, Ankara, Turkey); Ebru Voyvoda (Department of Economics, Middle East Technical University, Ankara, Turkey)
    Abstract: Under the legacy of dominant transport appraisal approach, which mainly relies on traditional cost-benefit assessment (CBA) analyses, candidate policies and associated projects are evaluated in a way to take primarily aggregate information into account. Although it is practical to use these methods, working with aggregate values leaves every kind of disparities aside and individual level information is lost in aggregation. This means that we need better economic models doing more than reducing outcomes of evaluated policies to numerical aggregates and averages. This study proposes a hybrid approach to grasp the heterogeneity among different agents and to endogenise interactions among different markets. A discrete choice theory-based household residential location and transport mode choice model and a traffic equilibrium model based on Wardrop’s principles are embedded in a traditional computable general equilibrium (CGE) model representing a closed urban economy. This requires fully integrating three different models (economic model, household location and mode choice model, traffic equilibrium model) using a single mathematical framework. The proposed integrated model is tested using pseudo data of a city with four districts where connection between districts are provided through two-way roads passing through a central district. Households are categorised according to their residential location, working location, preferred commuting mode and social status. Different types of transport policies (i.e. capacity increase in private transport, public transport improvement) are evaluated and impacts of these policies on such parameters like household distribution, households’ demands on consumption goods and housing, housing prices are analysed.
    Keywords: Wider economy impacts, Transport Policy, Computable General Equilibrium, Discrete Choice Model
    JEL: C68 R21 R41
    Date: 2017–06
  6. By: Kleijnen, J.P.C. (Tilburg University, Center For Economic Research)
    Abstract: This chapter surveys two methods for the optimization of real-world systems that are modelled through simulation. These methods use either linear regression metamodels, or Kriging (Gaussian processes). The metamodel type guides the design of the experiment; this design …fixes the input combinations of the simulation model. These regression models uses a sequence of local fi…rst-order and second-order polynomials— known as response surface methodology (RSM). Kriging models are global, but are re-estimated through sequential designs. "Robust" optimization may use RSM or Kriging, and accounts for uncertainty in simulation inputs.
    Keywords: Cross-validation; Robust optimization; Regression analysis; Kriging; Guassian Process; response surface methodology (RSM); efficient global optimization (EGO); Taguchi; Boottrap; common rondom numbers (CRN); Ltin hypercube sampling (LHS); Karush-Kuhn-Tucker (KKT)
    JEL: C0 C1 C9 C15 C44
    Date: 2017
  7. By: Ricardo Cris\'ostomo
    Abstract: We compare the CPU effort and pricing biases of six Fourier-based implementations. Our analyses show that truncation and discretization errors significantly increase as we move away from the Black- Scholes-Merton framework. We rank the speed and accuracy of the competing choices, showing which methods require smaller integration ranges and which are the most efficient in terms of sampling densities. While all implementations converge well in the Bates jump-diffusion model, Attari's formula is the only Fourier-based method that does not blow up for any Variance Gamma parameter values. In terms of speed, the use of strike vector computations significantly improves the computational burden, rendering both fast Fourier transforms (FFT) and plain delta-probability decompositions inefficient. Furthermore, we conclude that the strike-optimized version of Carr Madan's formula is simultaneously faster and more accurate than the FFT, thus questioning its use.
    Date: 2017–06
  8. By: Bastani, Spencer (Department of Economics and Statistics, Linnaeus University); Blomquist, Sören (Department of Economics); Micheletto, Luca (Department of Law, University of Milan)
    Abstract: In this paper we examine the desirability of subsidizing child care expenditures in a model where parents can choose both the quantity and the quality of child care services they purchase in the market. Our vehicle of analysis is a Mirrleesian optimal tax framework where child care services not only enable parents to work, but also contribute to children’s formation of human capital. In addition, there are externalities related to the parents’ choice of child care arrangements for their o spring. Using a quantitative simulation model calibrated to the US economy, we evaluate the relative merits of some the most common forms of child care subsidies (tax deductions, tax credits, and opting-out public provision schemes) in terms of their e ectiveness in alleviating the distortions associated with income taxation and increasing the quality of child care chosen by parents.
    Keywords: optimal income taxation; child care subsidies; tax deductibility; tax credit; public provision of private goods
    JEL: H21 H41
    Date: 2017–06–15
  9. By: Francesco Pasimeni (University of Sussex - Science and Technology Policy Research Unit (SPRU))
    Abstract: The Italian electricity system, based on a centralized grid, presents important inefficiencies in the transmission infrastructure and is highly import-dependent. At the same time, it has a high renewable potential. These three aspects might encourage Italy to shift from the traditional centralized grid to a new decentralized electricity system by adopting Micro-Grids (MGs). This transition, however, has not yet started. This work aims to study the possible scenarios of adoption and diffusion of MGs in Italy, by analysing the influence of regional factors, the potential role of subsidies and people’s attitude. An agent-based model is formulated in order to simulate the diffusion of MGs as a function of those characteristics and to analyse which policies could facilitate the adoption of MGs in the country. The results show the high dependence of the diffusion process on regional factors (electricity demand, renewable potential and population). Moreover, the model confirms that subsidies can encourage the diffusion (mainly when they are regional-based rather than national-based) and that a higher “green” attitude by users can accelerate the diffusion of MGs in Italy.
    Keywords: Micro-grids, Agent-based model, Innovation diffusion
    Date: 2017–05
  10. By: Richard A. Brecher (Department of Economics, Carleton University); Till Gross (Department of Economics, Carleton University)
    Abstract: Theoretically and numerically, we analyze the unemployment and income-distribution effects of economic growth, in a model with optimal saving (investment) and a minimum wage for unskilled labor. Within this three-factor model (including skilled labor), an exogenous rise in the growth rate increases unemployment if capital and unskilled labor are complements (versus substitutes), implying a trade-off between (faster) growth and (lower) unemployment. We also show how the growth rate affects the skill premium and factor shares of national income, providing little support for Piketty’s (2014) controversial thesis that capital’s share is higher when growth is slower.
    Keywords: Optimal growth, Minimum wage, Unskilled unemployment, Income distribution
    JEL: E24 O41
    Date: 2017–06–12
  11. By: Tat Lung (Ron); Chan
    Abstract: We apply a new numerical method, the singular Fourier-Pad\'e (SFP) method invented by Driscoll and Fornberg (2001, 2011), to price European-type options in L\'evy and affine processes. The motivation behind this application is to reduce the inefficiency of current Fourier techniques when they are used to approximate piecewise continuous (non-smooth) probability density functions. When techniques such as fast Fourier transforms and Fourier series are applied to price and hedge options with non-smooth probability density functions, they cause the Gibbs phenomenon; accordingly, the techniques converge slowly for density functions with jumps in value or derivatives. This seriously adversely affects the efficiency and accuracy of these techniques. In this paper, we derive pricing formulae and their option Greeks using the SFP method to resolve the Gibbs phenomenon and restore the global spectral convergence rate. Moreover, we show that our method requires a small number of terms to yield fast error convergence, and it is able to accurately price any European-type option deep in/out of the money and with very long/short maturities. Furthermore, we conduct an error-bound analysis of the SFP method in option pricing. This new method performs favourably in numerical experiments compared with existing techniques.
    Date: 2017–06
  12. By: Santos, Susana
    Abstract: A Social Accounting Matrix (SAM) is presented as a tool to study the socio-economic activity of a country. This activity involves the monetary or nominal flows that are measured by the National Accounts, as well as production (organized in factors, industries and goods and services) and institutions (organized in households, general government, non-financial and financial corporations, non-profit institutions serving households, and rest of the world). In order to contribute to the definition of a methodology that can contribute to improving the knowledge of the different aspects of this activity, the potentialities of a SAM for its reading and interpreting are explored, as well as for carrying out experiments regarding its functioning. Through a SAM-based approach, how to construct more or less complex networks of linkages of the above-mentioned flows is shown, from which structural features can be evidenced and the associated multiplier effects studied. Following an application to Portugal, it is shown that a numerical version of a SAM, enables an empirical description of the origin, use, and distribution of income, whereas, an algebraic version of a SAM allows one to carry out, for example, a deeper study of the multiplier effects associated with the institutional distribution of income. The crucial role of the factors of production accounts is identified in this study, namely when they establish the link between the generation and the distribution and use of income. In this process, the important role the complementary details that the Input-Output Matrix (IOM) can add is also identified. Thus, being the generation of income the result of the output of goods and services and the associated costs, on the one hand, an industry-by-industry IOM can add details regarding domestic and imported intermediate consumption by and between industries and, on the other hand, a product-by-product IOM can add details regarding the domestic and imported intermediate consumption of goods and services.
    Keywords: Social Accounting Matrix; National Accounts; SAM-based approach; socio-economic structure; Input-Output Matrix; Income Distribution.
    JEL: D57 E01 E02 E16 E25
    Date: 2017–06

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