nep-cmp New Economics Papers
on Computational Economics
Issue of 2018‒03‒05
fourteen papers chosen by

  1. A bright future for financial agent-based models By J. Lussange; A. Belianin; S. Bourgeois-Gironde; B. Gutkin
  2. Stock returns forecast: an examination by means of Artificial Neural Networks By Martin Iglesias Caride; Aurelio F. Bariviera; Laura Lanzarini
  3. What if supply-side policies are not enough? The perverse interaction of exibility and austerity By Dosi, Giovanni; Pereira, Marcelo C.; Roventini, Andrea; Virgillito, Maria Enrica
  4. Energy Tax Reform and Poverty Alleviation in Mexico By José M. Labeaga; Xavier Labandeira; Xiral López-Otero
  5. The Application of Artificial Intelligence at Chinese Digital Platform Giants: Baidu, Alibaba and Tencent By Jia, Kai; Kenney, Martin; Mattila, Juri; Seppälä, Timo
  6. How Artificial Intelligence and Machine Learning Can Impact Market Design By Paul R. Milgrom; Steven Tadelis
  7. Matchings with lower quotas: Algorithms and complexity By Ashwin Arulselvan; Agnes Cseh; Martin Groß; David F. Manlove; Jannik Matuschke
  8. Merger Simulations in the American Airline Industry By Tonnerre, Antoine
  9. Simulating stress across the financial system: the resilience of corporate bond markets and the role of investment funds By Baranova, Yuliya; Coen, Jamie; Noss, Joseph; Lowe, Pippa; Silvestri, Laura
  10. Baseline results from the EU28 EUROMOD: 2014-2017 By Tammik, Miko
  11. Fiscal Cost to Exit Quantitative Easing: The Case of Japan By Hiroshi Fujiki; Hajime Tomura
  12. How Do We Research Tax Morale at the Subnational Level? By Kangave, Jalia; Mascagni, Giulia; Moore, Mick
  13. From window guidance to interbank rates : Tracing the transition of monetary policy in Japan and China By Angrick, Stefan; Naoyuki, Yoshino
  14. Neue Haltelinien in der Rentenversicherung - und was dann? Variationen der Rentenanpassungsformel in einem einfachen Simulationsmodell By Kochskämper, Susanna

  1. By: J. Lussange; A. Belianin; S. Bourgeois-Gironde; B. Gutkin
    Abstract: The history of research in finance and economics has been widely impacted by the field of Agent-based Computational Economics (ACE). While at the same time being popular among natural science researchers for its proximity to the successful methods of physics and chemistry for example, the field of ACE has also received critics by a part of the social science community for its lack of empiricism. Yet recent trends have shifted the weights of these general arguments and potentially given ACE a whole new range of realism. At the base of these trends are found two present-day major scientific breakthroughs: the steady shift of psychology towards a hard science due to the advances of neuropsychology, and the progress of artificial intelligence and more specifically machine learning due to increasing computational power and big data. These two have also found common fields of study in the form of computational neuroscience, and human-computer interaction, among others. We outline here the main lines of a computational research study of collective economic behavior via Agent-Based Models (ABM) or Multi-Agent System (MAS), where each agent would be endowed with specific cognitive and behavioral biases known to the field of neuroeconomics, and at the same time autonomously implement rational quantitative financial strategies updated by machine learning. We postulate that such ABMs would offer a whole new range of realism.
    Date: 2018–01
  2. By: Martin Iglesias Caride; Aurelio F. Bariviera; Laura Lanzarini
    Abstract: The validity of the Efficient Market Hypothesis has been under severe scrutiny since several decades. However, the evidence against it is not conclusive. Artificial Neural Networks provide a model-free means to analize the prediction power of past returns on current returns. This chapter analizes the predictability in the intraday Brazilian stock market using a backpropagation Artificial Neural Network. We selected 20 stocks from Bovespa index, according to different market capitalization, as a proxy for stock size. We find that predictability is related to capitalization. In particular, larger stocks are less predictable than smaller ones.
    Date: 2018–01
  3. By: Dosi, Giovanni; Pereira, Marcelo C.; Roventini, Andrea; Virgillito, Maria Enrica
    Abstract: In this work we develop a set of labour market and fiscal policy experiments upon the labour and credit augmented "Schumpeter meeting Keynes" agent-based model. The labour market is declined under two institutional variants, the "Fordist" and the "Competitive" set- ups meant to capture the historical transition from the Fordist toward the post "Thatcher- Reagan" period. Inside these two regimes, we study the different effects of supply-side active labour market policies (ALMPs) vs. demand-management passive labour market ones (PLMPs). In particular, we analyse the effects of ALMPs aimed at promoting job search, and at providing training to unemployed people. Next, we compare the effects of these policies with unemployment benefits simply meant to sustain income and therefore aggregate demand. Considering the burden of unemployment benefits in terms of public budget, we link such provision with the objectives of the European Stability and Growth Pact. Our results show that (i) an appropriate level of skills is not enough to sustain growth when workers face adverse labour demand; (ii) supply-side policies are not able to reverse the perverse interaction between exibility and austerity; (iii) PLMPs outperform ALMPs in reducing unemployment and workers' skills deterioration; and (iv) demand-management policies are better suited to mitigate inequality and to improve and sustain long-run growth.
    Keywords: Industrial-relation Regimes,Flexibility,Active Labour Market Policies,Austerity,Agent-based models
    JEL: C63 E24 H53 J88
    Date: 2018
  4. By: José M. Labeaga; Xavier Labandeira; Xiral López-Otero
    Abstract: Equity and efficiency are crucial issues behind any tax reform, but they are particularly relevant in countries with high inequality and large shares of poverty. This paper provides a comprehensive socio-economic empirical assessment of Mexico’s recently implemented tax reforms in the energy domain, and of a hypothetical (partial) removal of existing electricity subsidies. Using the rich National Household Income and Expenditure Survey within the context of a demand system adjustment of non-durable goods, this article provides the publicrevenue, environmental and distributional impacts from the simulation of different combinations of energy taxation, subsidyremoval and distributive offsets.
    Keywords: Distribution; equity; emissions; subsidy
    JEL: D12 D31 H23 Q48
    Date: 2018–01
  5. By: Jia, Kai; Kenney, Martin; Mattila, Juri; Seppälä, Timo
    Abstract: Abstract The Chinese digital platform giants – Baidu, Alibaba and Tencent – have quickly risen to be amongst the most notable developers and users of artificial intelligence. One important catalyst for this development has been the so-called Platform Business Group (PBG) strategy used by Chinese digital platform firms. In this strategy a platform firm aims to develop powerful synergies by tightly linking together a number of different platforms it owns so as to offer multiple services to users under its umbrella. By applying the PBG strategy, Baidu, Alibaba, and Tencent are able to exploit enormous multi-faceted datasets on individuals for use in the development of artificial intelligence algorithms. As a result, the Chinese platform giants appear to be taking a somewhat different approach with the development and use of artificial intelligence than their Western counterparts. If the Chinese platform giants succeed in their efforts to expand into the global market, their business strategies will introduce a different threat to the conventional European industries from those challenges already presented by Apple, Amazon, Facebook, Google, and Microsoft.
    Keywords: Artificial Intelligence, Platforms, Platform Business Group strategy, Baidu, Alibaba, Tencent
    JEL: L8 L86 O3 O33
    Date: 2018–02–26
  6. By: Paul R. Milgrom; Steven Tadelis
    Abstract: In complex environments, it is challenging to learn enough about the underlying characteristics of transactions so as to design the best institutions to efficiently generate gains from trade. In recent years, Artificial Intelligence has emerged as an important tool that allows market designers to uncover important market fundamentals, and to better predict fluctuations that can cause friction in markets. This paper offers some recent examples of how Artificial Intelligence helps market designers improve the operations of markets, and outlines directions in which it will continue to shape and influence market design.
    JEL: D44 D82 L15
    Date: 2018–02
  7. By: Ashwin Arulselvan (Department of Management Science, Sir William Duncan Building, University of Strathclyde); Agnes Cseh (Institute of Economics, Research Centre for Economic and Regional Studies, Hungarian Academy of Sciences, and Corvinus University of Budapest); Martin Groß (Institute for Mathematics, Technische Universität Berlin); David F. Manlove (School of Computing Science, Sir Alwyn Williams Building, University of Glasgow); Jannik Matuschke (TUM School of Management, Technische Universiät München)
    Abstract: We study a natural generalization of the maximum weight many-to- one matching problem. We are given an undirected bipartite graph G = (A[_ P;E) with weights on the edges in E, and with lower and upper quotas on the vertices in P.We seek a maximum weight many-to-one matching satisfying two sets of constraints: vertices in A are incident to at most one matching edge, while vertices in P are either unmatched or they are incident to a number of matching edges between their lower and upper quota. This problem, which we call maximum weight many-to-one matching with lower and upper quotas (wmlq), has applications to the assignment of students to projects within university courses, where there are constraints on the minimum and maximum numbers of students that must be assigned to each project. In this paper, we provide a comprehensive analysis of the complexity of wmlq from the viewpoints of classical polynomial time algorithms, xedparameter tractability, as well as approximability. We draw the line between NP-hard and polynomially tractable instances in terms of degree and quota constraints and provide ecient algorithms to solve the tractable ones. We further show that the problem can be solved in polynomial time for instances with bounded treewidth; however, the corresponding runtime is exponential in the treewidth with the maximum upper quota umax as basis, and we prove that this dependence is necessary unless FPT = W[1]. The approximability of wmlq is also discussed: we present an approximation algorithm for the general case with performance guarantee umax + 1, which is asymptotically best possible unless P = NP. Finally, we elaborate on how most of our positive results carry over to matchings in arbitrary graphs with lower quotas.
    Keywords: maximum matching, many-to-one matching, project allocation, inapproximability, bounded treewidth
    JEL: C63 C78
    Date: 2017–09
  8. By: Tonnerre, Antoine
    Abstract: There has been a long history of mergers in the airline industry in the U.S.A., even more after the Airline Deregulation Act in 1978. Besides, merger simulations are an increasingly popular exercise that allow for well-motivated predictions regarding the outcome of the mergers. This is of great use for competition authorities. There has already been some work on this topic, from Peters (2006). This paper will differ in the following: the most recent data will be used, merger simulations will be performed at the market level, marginal costs will be directly estimated, and Cournot conduct will be assumed. Moreover, almost twenty years from now, researchers already predicted the reduction of the number of airlines in this industry in the U.S.A., because of its network nature. This reduction lead to increased market power, but also to increased efficiencies (see for instance Borenstein, 1990, 1992, and Kim & Singal 1993). In the end, do mergers in this industry automatically raise prices and reduce volumes? Are they still desirable today and if so, under which conditions ?
    Keywords: merger simulations; airlines; cournot; econometrics; industrial organization; cost estimation; demand estimation
    JEL: C53 L41 L44
    Date: 2017–10–02
  9. By: Baranova, Yuliya (Bank of England); Coen, Jamie (Bank of England); Noss, Joseph (Bank of England); Lowe, Pippa (Bank of England); Silvestri, Laura (Bank of England)
    Abstract: This paper provides a first step in developing a system-wide stress simulation. The model incorporates several important features of the financial system. These include several types of institution (including banks and non-banks) and how their actions may propagate and amplify stress. Rather than attempting to predict outcomes of a given stress scenario for financial sector balance sheets, it seeks to explore those conditions under which systemic stress may crystallise.
    Keywords: stress simulation; corporate bonds; investment funds; dealers; market liquidity; systemic stress; amplification
    JEL: G01 G11 G12 G14 G19 G23 G24
    Date: 2017–07–12
  10. By: Tammik, Miko
    Abstract: This paper presents baseline results from the latest version of EUROMOD (version H1.0+), the tax-benefit microsimulation model for the EU. First, we briefly report the process of updating EUROMOD. We then present indicators for income inequality and risk of poverty using EUROMOD and discuss the main reasons for differences between these and EU-SILC based indicators. We further compare EUROMOD distributional indicators across all EU 28 countries and over time between 2014 and 2017. Finally, we provide estimates of marginal effective tax rates (METR) for all 28 EU countries in order to explore the effect of tax and benefit systems on work incentives at the intensive margin. Throughout the paper, we highlight both the potential of EUROMOD as a tool for policy analysis and the caveats that should be borne in mind when using it and interpreting results. This paper updates the work reported in Makovec and Tammik (2017).
    Date: 2018–02–19
  11. By: Hiroshi Fujiki; Hajime Tomura
    Abstract: This paper simulates the cash flows and balance sheets of the Bank of Japan (BoJ) before and after exiting from Quantitative and Qualitative Monetary Easing (QQE) under various scenarios. The simulations show that the BoJ will record significant accounting losses after exiting QQE. These losses are fiscal costs for the consolidated Japanese government as they represent increased interest expenses to the public and will arise because the BoJ will acquire a large amount of Japanese government bonds at very low interest rates during QQE, whose interest payments will then be insufficient to cover interest expenses on excess reserves after exiting QQE. Moreover, any cumulative accounting losses will ensure the BoJ's net asset position remains negative for a sustained period of time. We also find that the BoJ's accounting losses will increase with the duration of QQE and the interest rate elasticity of banknote demand, and decrease if the BoJ conducts tapering following the ending of QQE. Finally, the effect of tapering will be significantly stronger if there is no safety channel for the long-term interest rate.Length: 51 pages
  12. By: Kangave, Jalia; Mascagni, Giulia; Moore, Mick
    Abstract: One of the most effective ways of increasing voluntary tax compliance is by improving tax morale. Several studies have been undertaken to examine why some individuals pay taxes while others do not. While many of these studies have been conducted at the national level, there is an increasing body of research at the subnational level. Three main methods are used to study tax morale: surveys, simulation exercises and field experiments. In this paper, we describe each of these methods, highlighting their strengths and weaknesses. We also examine their usefulness to tax administrators and policymakers wishing to increase tax compliance. We conclude that to get a better understanding of the factors that affect tax morale at the subnational level, more studies need to be undertaken. This should include studies that use qualitative methods to understand taxpayer behaviour. Lastly, studies should also investigate the variations between categories of individuals.
    Keywords: Finance, Politics and Power,
    Date: 2018
  13. By: Angrick, Stefan; Naoyuki, Yoshino
    Abstract: Monetary policy in most major economies has traditionally focused on control of the interbank interest rate to achieve an inflation target. Monetary policy in transition economies, in contrast, relied on a mixed system of price-based and quantity based instruments and targets. Japanese monetary policy up to the 1990s was based on such a mix, and echoes of this system are today found in China’s monetary policy set-up. We explore the transition of these two monetary policy regimes historically and quantitatively with institutional comparison and Structural Vector Autoregressive (SVAR) models. Specifically, we examine the role of the interbank rate and “window guidance,” a policy by which authorities use “moral suasion” to communicate target quotas for lending growth directly to commercial banks. In Japan’s case, we compile historical statistics on window guidance from newspapers and industry sources. For China, we apply Romer–Romer text analysis and computational linguistic techniques to policy reports to quantify information on window guidance.We empirically demonstrate the declining effectiveness of quantity measures and the increasing importance of price measures. We end with a policy assessment of managing the transition of monetary policy from a quantity-based system to a price-based system.
    JEL: E5 E52 E58
    Date: 2018–02–21
  14. By: Kochskämper, Susanna
    Abstract: In dem im Februar vorgestellten Koalitionsvertrag der CDU/CSU und SPD findet sich der Vorschlag, zwei neue Haltelinien für die gesetzliche Rentenversicherung einzuführen: Bis 2025 soll ein Sicherungsniveau von 48 Prozent nicht unter- und ein Beitragssatz von 20 Prozent nicht überschritten werden. Die weitere Entwicklung dieser Größen nach 2025 wird hingegen nicht weiter thematisiert. In diesem Beitrag werden drei mögliche Varianten für die Zeit nach 2025 vorgestellt: Die Rückkehr zum ursprünglichen Anpassungspfad dieser beiden Größen, ein Einfrieren dieser Größen über 2025 hinaus oder die Berechnung eines neuen Anpassungspfades beginnend mit dem Niveau in 2025. Anhand eines einfachen Simulationsmodells wird gezeigt, dass die Varianten, die von dem ursprünglichen Anpassungspfad abweichen, zwar zu einem höheren Sicherungsniveau führen, gleichzeitig jedoch nur mit einem höheren Beitragssatz beziehungsweise mit zusätzlichen Steuermitteln finanziert werden können. Insbesondere, wenn diese beiden Haltelinien über 2025 hinaus festgeschrieben werden, muss der Anteil der Bundesmittel an der Finanzierung der Rentenversicherung von gegenwärtig rund 30 Prozent auf über 37 Prozent in 2030 erhöht werden. In allen Varianten wird die künftige Beitragszahlergeneration stärker belastet, als es unter Beibehaltung der gegenwärtigen Rentenanpassungsformel der Fall wäre. Damit würde sich die Politik jedoch zusätzlichem Druck aussetzen: Erstens muss sie relativ schnell eine Antwort darauf liefern, wie es nach 2025, also bereits in sieben Jahre weitergehen soll. Zweitens besteht dann die Gefahr, dass sich die neu definierten Haltelinien nicht auf den alten Anpassungspfad zurückführen lassen, da dies mit "politischen Sachzwängen", sprich erheblichen Risiken für eine mögliche Wiederwahl der Sozialpolitiker verbunden wäre. Damit würden jedoch die höheren Belastungen für die künftigen Beitragszahler festgeschrieben. Drittens kann eine Verschlechterung der künftigen Arbeitsmarktsituation den Druck zusätzlich erhöhen und Handlungsbedarf schon vor 2025 erforderlich machen. Dann wird die Rentenpolitik jedoch zur Krisenpolitik und nimmt sich die Chance, gestalterisch tätig zu werden.
    JEL: H55 J11
    Date: 2018

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