Computational Economics I
Syllabus: Computational Economics
Aim of the course:
This course introduces the numerical implementation of economic models. Students will first learn to program in FORTRAN and to apply numerical methods for solving equation systems and integrals. The these methods are used in three areas: tax policy analysis with static general equilibrium models, portfolio choice analysis and option pricing, life-cycle decision making and overlapping generation models.
After finishing this course students are able to
(1) implement simple economic models on the computer using Fortran 90
(2) using Monte-Carlo techniques to find optimal portfolio structures and option prices,
(3) simulate simple reforms of the tax and transfers system,
(4) interpret the simulation results economically.
The course will consist of a series of lectures and exercises. The teaching sequence is divided into five units each consisting of several lecture and exercise classes:
- In the first unit, students will learn how to program in FORTRAN and acquire some basic skills in applying numerical methods. FORTRAN is a free, fast and easy to learn programming language that is used quite frequently in modern quantitative macroecomic research.
- Unit 2 will be concerned with solution techniques to solve linear and nonlinear equation systems, optimization problems and numerical integration.
- Unit 3 will develop a simple static general equilibrium model in order to discuss the command optimum and the equilibrium model in order to discuss the command optimum and the equilibrium in a market economy. In addition we will also introduce the public sector and simulate various tax policies.
- The forth unit will deal with two topics in finance. Given time series data on stock return we compute minimum variance portfolios with alternative approaches. In addition we introduce a specific process for the future realization of the stock price and compute the resulting option prices applying the Black-Scholes formula and Monte-Carlo methods.
- The last unit will introduce the life-cycle model of intertemporal choice which will be used to discuss optimal consumption plans without and with uncertain labor income. Finally, the overlapping generations model (OLG) is introduced in the most basic version.
Students should bring along a strong willingness to specialize in programming (which implies that they will program a lot themselves).
Grades will be based on student's participation in the course as well as on some programming assignments.
There will be ample course material on how to program in FORTRAN, which compilers to use, numerical techniques, etc. In addition to a couple of chapters on these topics, there will be FORTRAN codes available for everything we do.