Structural dynamic microsimulation modelling at the National Institute LINDA and sidd Structural dynamic microsimulation modelling at the National Institute Justin van de Ven 13/01/2017 www.niesr.ac.uk - www.simdynamics.org

outline What are SIDD and LINDA? Details of the modelling approach What is the model good for? Next steps www.niesr.ac.uk - www.simdynamics.org

SIDD and linda SIDD – Simulator of Individual Dynamic Decisions A framework for structural dynamic microsimulation modelling Modelling: Stylised analytical description of reality Microsimulation: Projecting the circumstances of individual adults Dynamic: Projecting adults through time Structural: Labour and savings decisions based on lifecycle framework Employs Dynamic Programming methods Framework: Designed to facilitate adaptation to alternative contexts LINDA – Liftime INcome Distributional Analysis model The UK parameterisation of SIDD SIDD has also been set-up for other countries: PENSIM for Ireland ITALISSIMO for Italy www.niesr.ac.uk - www.simdynamics.org

Model details Model generates panel data for a simulated population Reference cross-section projected forward and backward through time Necessary to build up picture of lifetime circumstances Evolving cross-section projected forward through time Necessary to consider implications for nationally representative statistics, including relative poverty, and the government budget Model is freely available for download from www.simdynamics.org www.niesr.ac.uk - www.simdynamics.org

Model details Accommodated characteristics: year of birth* - age* -relationship status children - student status - education level health status - carer status - migration status employment sector - labour income (x2) - ISA investments business assets - pens scheme - pension wealth BSP* - S2P - other wealth retirement* - time of death * denotes non-stochastic characteristics www.niesr.ac.uk - www.simdynamics.org

Model details Model designed for use by non-specialists Model parameters altered through Excel Excel front-end provided for LINDA Computations conducted using a stand-alone executable Programmed in Fortran Outputs: Panel data for simulated population output Selected summary statistics reported in Excel files Development supported by a wide array of funders www.niesr.ac.uk - www.simdynamics.org

What is sidd good for? BANK OF ENGLAND’S HALDANE ADMITS CRISIS IN ECONOMIC FORECASTS “It’s a fair cop to say the profession is to some degree in crisis.” Article noted Andy Haldane’s: recognition of the problems inherent in placing too much reliance on large models of the economy which assume people always behave rationally preference to move away from “narrow and fragile” models to a broader analysis which encompasses insights from other disciplines (Andy) Haldane admits crisis in economic forecasting. www.niesr.ac.uk - www.simdynamics.org

What is sidd good for? Model is not an appropriate tool for forecasting the future state of the economy Model is highly stylised, omitting much of the complexity that is likely to determine the economy’s future trajectory Can the stylisations be relaxed to obtain a tool that is suitable for forecasting the future state of the economy? What practical uses can the existing version of the model be put to? (Andy) Haldane admits crisis in economic forecasting. www.niesr.ac.uk - www.simdynamics.org

What is sidd good for? Stylisations are made necessary by the numerical burden of the lifecycle framework in context of existing technology Model can be used to forecast the effects of policy counterfactuals in controlled economic contexts Policy counterfactual vs status quo Represented characteristics selected to reflect policy focus Measure of uncertainty associated with accommodated variation (Andy) Haldane admits crisis in economic forecasting. www.niesr.ac.uk - www.simdynamics.org

What is sidd good for? Model is ideal for exploring the implications of policy counterfactuals where behavioural responses are considered important where policy is explicitly designed to influence behaviour increasingly important as the time horizon is lengthened Past work focuses predominantly on pension policy: Armstrong & van de Ven (2016), van de Ven (2013), Sefton & van de Ven (2009), and Sefton et al. (2008) JRF (2016) used LINDA to price reforms designed to reduce poverty Model is also useful for considering the empirical support for alternative behavioural assumptions van de Ven (2016b) for detailed discussion, and van de ven & Weale (2010) www.niesr.ac.uk - www.simdynamics.org

What next? Developmental focus Academic focus Expand user-base Expand model states to include: gender (moderately challenging) housing (very challenging) Macro-economic endogeneity Improve cloud computing integration Academic focus Parameterisation Policy counterfactuals Expand user-base A fundamental objective, both for philosophical reasons, and because of the substantive economies of scale that exist 4/30/2019 www.niesr.ac.uk - www.simdynamics.org