Bank of Lithuania
Category
Series
Topic
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Year
All results 219
No 3
2009-01-23

Agent-based financial modelling: a promising alternative to the standard representative-agent approach

  • Abstract

    In this paper we provide a brief introduction to the literature on agent-based financial modelling and, more specifically, artificial stock market modelling. In the selective literature review two broad categories of artificial stock market models are discussed: models based on hard-wired rules and models with learning and systemic adaptation. The paper discusses pros and cons of agent-based financial modelling as opposed to the standard representative-agent approach. We advocate the need for the proper account of market complexity, agent heterogeneity, bounded rationality and adaptive (though not simplistic) expectations in financial modelling. We also argue that intelligent adaptation in highly uncertain environment is key to understanding actual financial market behaviour and we resort to a specific area of artificial intelligence theory, namely reinforcement learning, as one plausible and economically appealing algorithm of adaptation and learning.

    JEL Codes: G10, G11, G14, Y20.

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

No 2
2008-02-23

Personal income tax reform in Lithuania: Macroeconomic and welfare implications

  • Abstract

    In this paper, the economic impact of the 2006–2008 personal income tax (PIT) reform in Lithuania is analyzed applying model-based simulations. We find that the undertaken PIT reform is unsustainable as it leads to permanent government budget deficits and ever increasing public debt. This result holds even allowing for endogenous reduction in tax evasion. After introducing permanent compensatory fiscal measures ensuring long-term sustainability of the PIT reduction, we demonstrate that the lower PIT produces higher output and lower prices in the long run. Higher domestic spending is supported by higher employment and after-tax wages. Moreover, following a reduction in the marginal production costs, producer prices fall enhancing economy’s international competitiveness and boosting domestic exports. Pre-announcement of the tax reform implies early macroeconomic reaction, and thus in most cases smoother adjustment of the economy to the tax change.

    JEL Codes: E62, H24, H25, H26.

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

No 1
2008-01-23

Short-term forecasting of GDP using large monthly data sets: a pseudo real-time forecast evaluation exercise

  • Abstract

    This paper evaluates different models for the short-term forecasting of real GDP growth in ten selected European countries and the euro area as a whole. Purely quarterly models are compared with models designed to exploit early releases of monthly indicators for the nowcast and forecast of quarterly GDP growth. Amongst the latter, we consider small bridge equations and forecast equations in which the bridging between monthly and quarterly data is achieved through a regression on factors extracted from large monthly datasets. The forecasting exercise is performed in a simulated real-time context, which takes account of publication lags in the individual series. In general, we find that models that exploit monthly information outperform models that use purely quarterly data and, amongst the former, factor models perform best. 

    JEL Codes: E37, C53. 

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.