Essays in economic policy analysis using simulation

Abstract

Economic simulation approaches still receive little recognition in the mainstream economic community. On the one hand, this is due to the non-conformity of simulations with the traditional economic paradigm which relies on closed-form mathematical models. On the other hand, simulation models are considered as very opaque. This latter criticism turns out to be valid to some degree. The issues are, however, more related to communicative rather than methodological problems. Simulation methods enable the construction of richer models of the systems under investigation and the inclusion of more actors and they are based on weaker assumptions than traditional economic models. Therefore, simulation approaches match the information needs of policy makers who demand increasing detail from the analysis. Simulation is thus a necessary complement to more traditional methods of economic analysis. The four core chapters of this thesis review and apply several simulation methods designed to analyze and compare alternative economic policy options for decision making.