1. 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

2. outline What are SIDD and LINDA? Details of the modelling approach
What is the model good for?
Next steps

3. 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

4. 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

5. 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

6. 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

7. 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.

8. 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.

9. 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.

10. 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)

11. 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