178 research outputs found
The impact of phasing out fossil fuel subsidies on the low-carbon transition
There is growing consensus on the fact that fossil fuel subsidies provided by governments in high-income countries represent a misalignment on emissions\u2019 reduction with the global climate agenda. In addition, a discussion emerged on the negative socio-economic and environmental externalities associated with fossil fuel subsidies. Nevertheless, pathways for phasing out fossil fuel subsidies in high income countries and their implications on the low-carbon transition have not yet been assessed. With the aim to narrow this knowledge gap, we extend the EIRIN Stock-Flow Consistent behavioral model to study the implications on sustainable development of the gradual phasing out of fossil fuels subsidies, whose revenues could be used by the government to subsidize energy investments in green capital (e.g. solar panels), either via fiscal policies or green bonds. We assess the effects on green growth, employment, credit and bonds market, as well as the distributive effects across heterogeneous households and sectors. A smooth phasing out of fossil fuels subsidies contributes to improve macroeconomic performance, to decrease inequality and helps the government to find fiscal space to support stable renewable energy policies. Renewable energy subsidies contribute to foster the low-carbon transition but could imply distributive effects, depending on the way in which they are implemented
Agent-based simulation of a financial market
This paper introduces an agent-based artificial financial market in which
heterogeneous agents trade one single asset through a realistic trading
mechanism for price formation. Agents are initially endowed with a finite
amount of cash and a given finite portfolio of assets. There is no
money-creation process; the total available cash is conserved in time. In each
period, agents make random buy and sell decisions that are constrained by
available resources, subject to clustering, and dependent on the volatility of
previous periods. The model herein proposed is able to reproduce the
leptokurtic shape of the probability density of log price returns and the
clustering of volatility. Implemented using extreme programming and
object-oriented technology, the simulator is a flexible computational
experimental facility that can find applications in both academic and
industrial research projects.Comment: 11 pages, 3 EPS figures, LaTEX. To be published in Physica A
(Proceedings of the NATO Advanced Research Workshop on Application of Physics
in Economic Modelling, Prague 8-10 February 2001
Compounding COVID-19 and climate risks: The interplay of banksâ lending and government's policy in the shock recovery
We assess the individual and compounding impacts of COVID-19 and climate physical risks in the economy and finance, using the EIRIN Stock-Flow Consistent model. We study the interplay between banksâ lending decisions and government's policy effectiveness in the economic recovery process. We calibrate EIRIN on Mexico, being a country highly exposed to COVID-19 and hurricanes risks. By embedding financial actors and the credit market, and by endogenising investorsâ expectations, EIRIN analyses the finance-economy feedbacks, providing an accurate assessment of risks and policy co-benefits. We quantify the impacts of compounding COVID-19 and hurricanes on GDP through time using a compound risk indicator. We find that procyclical lending and credit market constraints amplify the initial shocks by limiting firmsâ recovery investments, thus mining the effectiveness of higher government spending. When COVID-19 and hurricanes compound, non-linear dynamics that amplify losses emerge, negatively affecting the economic recovery, banksâ financial stability and public debt sustainability
Mixtures of compound Poisson processes as models of tick-by-tick financial data
A model for the phenomenological description of tick-by-tick share prices in
a stock exchange is introduced. It is based on mixtures of compound Poisson
processes. Preliminary results based on Monte Carlo simulation show that this
model can reproduce various stylized facts.Comment: 12 pages, 6 figures, to appear in a special issue of Chaos, Solitons
and Fractal
Coupled continuous time random walks in finance
Continuous time random walks (CTRWs) are used in physics to model anomalous
diffusion, by incorporating a random waiting time between particle jumps. In
finance, the particle jumps are log-returns and the waiting times measure delay
between transactions. These two random variables (log-return and waiting time)
are typically not independent. For these coupled CTRW models, we can now
compute the limiting stochastic process (just like Brownian motion is the limit
of a simple random walk), even in the case of heavy tailed (power-law) price
jumps and/or waiting times. The probability density functions for this limit
process solve fractional partial differential equations. In some cases, these
equations can be explicitly solved to yield descriptions of long-term price
changes, based on a high-resolution model of individual trades that includes
the statistical dependence between waiting times and the subsequent
log-returns. In the heavy tailed case, this involves operator stable space-time
random vectors that generalize the familiar stable models. In this paper, we
will review the fundamental theory and present two applications with
tick-by-tick stock and futures data.Comment: 7 pages, 2 figures. Paper presented at the Econophysics Colloquium,
Canberra, Australia, November 200
A Multi Agent Model for the Limit Order Book Dynamics
In the present work we introduce a novel multi-agent model with the aim to
reproduce the dynamics of a double auction market at microscopic time scale
through a faithful simulation of the matching mechanics in the limit order
book. The agents follow a noise decision making process where their actions are
related to a stochastic variable, "the market sentiment", which we define as a
mixture of public and private information. The model, despite making just few
basic assumptions over the trading strategies of the agents, is able to
reproduce several empirical features of the high-frequency dynamics of the
market microstructure not only related to the price movements but also to the
deposition of the orders in the book.Comment: 20 pages, 11 figures, in press European Physical Journal B (EPJB
Semi-Markov Graph Dynamics
In this paper, we outline a model of graph (or network) dynamics based on two
ingredients. The first ingredient is a Markov chain on the space of possible
graphs. The second ingredient is a semi-Markov counting process of renewal
type. The model consists in subordinating the Markov chain to the semi-Markov
counting process. In simple words, this means that the chain transitions occur
at random time instants called epochs. The model is quite rich and its possible
connections with algebraic geometry are briefly discussed. Moreover, for the
sake of simplicity, we focus on the space of undirected graphs with a fixed
number of nodes. However, in an example, we present an interbank market model
where it is meaningful to use directed graphs or even weighted graphs.Comment: 25 pages, 4 figures, submitted to PLoS-ON
Uncoupled continuous-time random walks: Solution and limiting behavior of the master equation
A detailed study is presented for a large class of uncoupled continuous-time
random walks (CTRWs). The master equation is solved for the Mittag-Leffler
survival probability. The properly scaled diffusive limit of the master
equation is taken and its relation with the fractional diffusion equation is
discussed. Finally, some common objections found in the literature are
thoroughly reviewed.Comment: Preprint version of an already published paper. 8 page
Common Scaling Patterns in Intertrade Times of U. S. Stocks
We analyze the sequence of time intervals between consecutive stock trades of
thirty companies representing eight sectors of the U. S. economy over a period
of four years. For all companies we find that: (i) the probability density
function of intertrade times may be fit by a Weibull distribution; (ii) when
appropriately rescaled the probability densities of all companies collapse onto
a single curve implying a universal functional form; (iii) the intertrade times
exhibit power-law correlated behavior within a trading day and a consistently
greater degree of correlation over larger time scales, in agreement with the
correlation behavior of the absolute price returns for the corresponding
company, and (iv) the magnitude series of intertrade time increments is
characterized by long-range power-law correlations suggesting the presence of
nonlinear features in the trading dynamics, while the sign series is
anti-correlated at small scales. Our results suggest that independent of
industry sector, market capitalization and average level of trading activity,
the series of intertrade times exhibit possibly universal scaling patterns,
which may relate to a common mechanism underlying the trading dynamics of
diverse companies. Further, our observation of long-range power-law
correlations and a parallel with the crossover in the scaling of absolute price
returns for each individual stock, support the hypothesis that the dynamics of
transaction times may play a role in the process of price formation.Comment: 8 pages, 5 figures. Presented at The Second Nikkei Econophysics
Workshop, Tokyo, 11-14 Nov. 2002. A subset appears in "The Application of
Econophysics: Proceedings of the Second Nikkei Econophysics Symposium",
editor H. Takayasu (Springer-Verlag, Tokyo, 2003) pp.51-57. Submitted to
Phys. Rev. E on 25 June 200
A complex systems approach to constructing better models for managing financial markets and the economy
We outline a vision for an ambitious program to understand the economy and financial markets as a complex evolving system of coupled networks of interacting agents. This is a completely different vision from that currently used in most economic models. This view implies new challenges and opportunities for policy and managing economic crises. The dynamics of such models inherently involve sudden and sometimes dramatic changes of state. Further, the tools and approaches we use emphasize the analysis of crises rather than of calm periods. In this they respond directly to the calls of Governors Bernanke and Trichet for new approaches to macroeconomic modelling.The publication of this work was partially supported by the European Unionâs Seventh Framework Programme (FP7/2007-2013) under grant agreement No. 284709, a Coordination and Support Action in the Information and Communication Technologies activity area (âFuturICTâ FET Flagship Pilot Project). Doyne Farmer, Mauro Gallegati and Cars Hommes also acknowledge financial support from the EU-7th framework collaborative project âComplexity Research Initiative for Systemic InstabilitieS (CRISIS)â, grant No. 288501. Cars Hommes acknowledges financial support from the Netherlands Organization for Scientific Research (NWO), project âUnderstanding Financial Instability through Complex Systemsâ. None of the above are responsible for errors in this paper.Publicad
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