Carlo Bianchi

Indirect estimation of stochastic differential equation models: some computational experiments

In this paper we consider the estimation of some stochastic differential equation models by an indirect estimation method proposed by Gourieroux, Monfort and Renault (1993) using discrete data. The performance of this method is analysed via Monte Carlo experiments. In particular we examine the Vasicek and the Cox, Ingersoll and Ross models used in financial economics and a system of three stochastic differential equations proposed by P.C.B. Phillips in 1972. These results show the ability of indirect estimation to remove the bias resulting from the discretisation of the continuous model.

Validating a Dynamic Microsimulation Model of the Italian Households

The recent literature — including among others Redmond et al. [22], Gupta and Kapur [13], Mitton et al. [19] — has highlighted model alignment and validation as crucial issues to be tackled when microsimulating the consequences of public policies. This paper discusses some preliminary validation experiments performed on the model inputs, procedures and simulation results. The validation process that we use involves external checks, such as the ex-post comparison (from 1996 since 1999) of aggregated key macro variables (e.g. dependent workers’ incomes, and demographic variables) with official data (e.g. supplied by the Italian National Institute for Statistics ISTAT) at national and at regional level (North, Centre and South). We test the appropriateness of the main assumptions and specification of the model and policies’ effectiveness also using Monte Carlo simulations. Specifically, our analysis allows us to test MIND’s ability in forecasting demographic and economic trends and in capturing socio-economic dynamics for regional areas.

Early Retirement From The Labour Market: Policy Experiments In The Italian Case

AbstractThe substantial changes in the Italian pension system over the last decade subsequent to the Amato, Dini, Prodi and Berlusconi reforms have given raise to a renewed debate on re-designing pension system and in particular seniority pensions. Workers respond quickly to different incentives present in the pension systems and to expected government policies, especially through their retirement choices. These reactions, in turn, can or should inform government policy design to contrast the consequences of the ageing process. Based on the not fully satisfactory way of addressing such issues, this paper aims to shed some new light on the transition from one pension regime to another. After a brief review of the economic literature, this paper presents a bit more evidence on early retirement and its future evolution using dynamic ageing methodology, considering an economy, with heterogeneous workers, whose retirement age depends on expected utility. We examine behavioural changes estimating the age of retirement along the current pension reform path, assuming different behavioural regimes and policies, using a model calibrated to reproduce the main Italian demographic and economic features and retirement dynamics. We find a tendency to postpone the exit from labour market, especially when workers maximise their benefits flow coming from all incomes, instead of sole pension benefits. In this case, pension expenditures grow faster, because savings, due to retirement postponement, are compensated by higher benefits. Finally, we consider how future trends of inequality and poverty among pensioners can be negatively affected by the government seniority pension reform and propose possible remedies.

Alternative Estimators of a Diffusion Model of the Term Structure of Interest Rates. A Monte Carlo Comparison

We evaluate, through Monte Carlo experiments, the econometric performance of six alternative estimators of the basic parameters of the Cox—Ingersoll—Ross single-factor diffusion model of the term structure of interest rates. Different generating schemes are compared and the unobservability of the state-variable is taken into account. The effects of approximating interest rates, increasing frequency data and starting values are analyzed. A Monte Carlo evaluation of the effects on bond prices of biased parameter estimates is provided.

Policy Analysis Using a Microsimulation Model of the Italian Households

In this paper, we apply a dynamic microsimulation approach, which allows us to examine the evolution of the system as a whole and at the same time to focus our attention on the different typologies of workers and pensioners. The latter objective is achieved by simulating individual reactions to systemic changes, while taking into account the regional dimensions. This technique also enables us to perform a general micro-analysis of the effects of past reforms on family pension-income distribution and average individual pension-benefits. The analytical framework used is the dynamic microsimulation model MIND, jointly developed by the University of Parma and Pisa, that incorporates behavioural analysis of individual choices of retirement age, derived from the Stock-Wise [24] option value model. We also perform sensitivity analysis on the model. This represents a valuable technique for treating uncertainty in input variables and for testing the robustness of the simulation results to possible changes in the macroeconomic scenario. In particular, we measure the economic impact resulting from alternative values of the income growth rate and the real interest rate as well as the effect of different distributions of the education degree reached by the individuals.