growth, distributions, and the environment · 2018-11-29 · introduction model policy simulations...
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![Page 1: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/1.jpg)
Introduction Model Policy simulations Conclusions
Growth, Distributions, and the Environment:
A Modeling Framework for Policy Analysis
Asjad Naqvi, Ph.D.
Post-doc, Institute for Ecological Economics,Department of Socioeconomics
AK Future of Capitalism Conference, 25 Sept 2014
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Introduction Model Policy simulations Conclusions
Challenge 1: GDP growth falling
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Introduction Model Policy simulations Conclusions
Challenge 2: Unemployment rising
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Introduction Model Policy simulations Conclusions
Challenge 3: Real disposable incomes falling
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Introduction Model Policy simulations Conclusions
Challenge 5: Energy consumption stagnant
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Introduction Model Policy simulations Conclusions
Challenge 6: Some emissions targets missing
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Introduction Model Policy simulations Conclusions
GDP composition
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Introduction Model Policy simulations Conclusions
Growth vs Environment
I EU is a closed economy
I 90% of demand is internal
I Increase in real incomes can boost demand, lead to growth,employment
I BUT
I Higher growth can result in higher output and subsequentlyhigher emissions
I Several proposed solutions
![Page 9: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/9.jpg)
Introduction Model Policy simulations Conclusions
Growth vs Environment
I EU is a closed economy
I 90% of demand is internal
I Increase in real incomes can boost demand, lead to growth,employment
I BUT
I Higher growth can result in higher output and subsequentlyhigher emissions
I Several proposed solutions
![Page 10: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/10.jpg)
Introduction Model Policy simulations Conclusions
Growth vs Environment
I EU is a closed economy
I 90% of demand is internal
I Increase in real incomes can boost demand, lead to growth,employment
I BUT
I Higher growth can result in higher output and subsequentlyhigher emissions
I Several proposed solutions
![Page 11: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/11.jpg)
Introduction Model Policy simulations Conclusions
Growth vs Environment
I EU is a closed economy
I 90% of demand is internal
I Increase in real incomes can boost demand, lead to growth,employment
I BUT
I Higher growth can result in higher output and subsequentlyhigher emissions
I Several proposed solutions
![Page 12: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/12.jpg)
Introduction Model Policy simulations Conclusions
Growth vs Environment
I EU is a closed economy
I 90% of demand is internal
I Increase in real incomes can boost demand, lead to growth,employment
I BUT
I Higher growth can result in higher output and subsequentlyhigher emissions
I Several proposed solutions
![Page 13: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/13.jpg)
Introduction Model Policy simulations Conclusions
Some proposed solutions
I Keep growth very low or even zero
I Through reduction in demand (who reduces?)
I High investment in innovation technologies
I Absolute decoupling (who invests?)
I Emissions regulation through climate taxes (tax whom?)
I Carbon pricing (how do you price?)
I Redistribution?
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Introduction Model Policy simulations Conclusions
Some proposed solutions
I Keep growth very low or even zero
I Through reduction in demand (who reduces?)
I High investment in innovation technologies
I Absolute decoupling (who invests?)
I Emissions regulation through climate taxes (tax whom?)
I Carbon pricing (how do you price?)
I Redistribution?
![Page 15: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/15.jpg)
Introduction Model Policy simulations Conclusions
Some proposed solutions
I Keep growth very low or even zero
I Through reduction in demand (who reduces?)
I High investment in innovation technologies
I Absolute decoupling (who invests?)
I Emissions regulation through climate taxes (tax whom?)
I Carbon pricing (how do you price?)
I Redistribution?
![Page 16: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/16.jpg)
Introduction Model Policy simulations Conclusions
Some proposed solutions
I Keep growth very low or even zero
I Through reduction in demand (who reduces?)
I High investment in innovation technologies
I Absolute decoupling (who invests?)
I Emissions regulation through climate taxes (tax whom?)
I Carbon pricing (how do you price?)
I Redistribution?
![Page 17: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/17.jpg)
Introduction Model Policy simulations Conclusions
Some proposed solutions
I Keep growth very low or even zero
I Through reduction in demand (who reduces?)
I High investment in innovation technologies
I Absolute decoupling (who invests?)
I Emissions regulation through climate taxes (tax whom?)
I Carbon pricing (how do you price?)
I Redistribution?
![Page 18: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/18.jpg)
Introduction Model Policy simulations Conclusions
The Policy Challenge
I Regardless of policy decision, solutions are not trivial
I The economy is complex with multiple integrated sectors
I HH, �rms, �nancial, governmentI Policy response in one sector might feedback a negative
response in another
I Need to have a framework that tracks policy response acrossall sectors of the economy
I Social Accounting Matrices (SAMs) (Taylor 2004)I Stock-�ow consistent models (SFCs) (Godley and Lavoie 2007)
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Introduction Model Policy simulations Conclusions
The Policy Challenge
I Regardless of policy decision, solutions are not trivial
I The economy is complex with multiple integrated sectors
I HH, �rms, �nancial, governmentI Policy response in one sector might feedback a negative
response in another
I Need to have a framework that tracks policy response acrossall sectors of the economy
I Social Accounting Matrices (SAMs) (Taylor 2004)I Stock-�ow consistent models (SFCs) (Godley and Lavoie 2007)
![Page 20: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/20.jpg)
Introduction Model Policy simulations Conclusions
The Policy Challenge
I Regardless of policy decision, solutions are not trivial
I The economy is complex with multiple integrated sectors
I HH, �rms, �nancial, governmentI Policy response in one sector might feedback a negative
response in another
I Need to have a framework that tracks policy response acrossall sectors of the economy
I Social Accounting Matrices (SAMs) (Taylor 2004)I Stock-�ow consistent models (SFCs) (Godley and Lavoie 2007)
![Page 21: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/21.jpg)
Introduction Model Policy simulations Conclusions
National Accounts
I Economic activity is captured in monetary terms in twoprimary accounts
I Balance sheets: Net worth (asset, liabilities) → Stocks
I Flow of funds: sources and uses of funds → Flows
I Combined in the Integrated Economics and Financial Accounts(ECB quarterly reports)
![Page 22: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/22.jpg)
Introduction Model Policy simulations Conclusions
National Accounts
I Economic activity is captured in monetary terms in twoprimary accounts
I Balance sheets: Net worth (asset, liabilities) → Stocks
I Flow of funds: sources and uses of funds → Flows
I Combined in the Integrated Economics and Financial Accounts(ECB quarterly reports)
![Page 23: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/23.jpg)
Introduction Model Policy simulations Conclusions
National Accounts
I Economic activity is captured in monetary terms in twoprimary accounts
I Balance sheets: Net worth (asset, liabilities) → Stocks
I Flow of funds: sources and uses of funds → Flows
I Combined in the Integrated Economics and Financial Accounts(ECB quarterly reports)
![Page 24: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/24.jpg)
Introduction Model Policy simulations Conclusions
National Accounts
I Economic activity is captured in monetary terms in twoprimary accounts
I Balance sheets: Net worth (asset, liabilities) → Stocks
I Flow of funds: sources and uses of funds → Flows
I Combined in the Integrated Economics and Financial Accounts(ECB quarterly reports)
![Page 25: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/25.jpg)
Introduction Model Policy simulations Conclusions
Euro region Household Sector
Table: Household Balance Sheet (EUR Billions)
Category Balance 2012-Q4 2013-Q4 % ∆
Non �nancial assetsNon-�nancial assets 29,625 29,041 68% -584
Housing wealth 28,055 27,435 64% -620
Financial assets
Currency and deposits 7,046 7,225 17% 179
Securities and derivatives 1,537 1,365 4% -172
Loans -6,196 -6,152 14% 44
Shares and equities 4,310 4,858 11% 543
Insurance and pension 5,939 6,184 14% -245
Other 195 169 -26
Net worth 42,456 42,685 229
Source: ECB Monthly Bulletin May 2014
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Introduction Model Policy simulations Conclusions
Euro region Household Sector
Table: Household Flow of funds (EUR Billions)
Flows 2013-Q4
Total income (all sources) 7,059
Net social contributions receivable 182
Tax -962
Gross disposable income 6,279
Consumption -5,507
Gross savings 829
Consumption of �xed capital -407
Net capital transfers -4
Change in worth of stocks -189
Net savings (∆ net worth) 229Source: ECB Monthly Bulletin May 2014
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Introduction Model Policy simulations Conclusions
National Accounts
I Economic activity is captured in monetary terms in twoprimary accounts
I Balance sheets: Net worth (asset, liabilities) → Stocks
I Flow of funds: sources and uses of funds → Flows
I Combined in the Integrated Economics and Financial Accounts(ECB quarterly reports)
I Link economic activity (monetary) with the environment(physical)
![Page 28: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/28.jpg)
Introduction Model Policy simulations Conclusions
National Accounts
I Economic activity is captured in monetary terms in twoprimary accounts
I Balance sheets: Net worth (asset, liabilities) → Stocks
I Flow of funds: sources and uses of funds → Flows
I Combined in the Integrated Economics and Financial Accounts(ECB quarterly reports)
I Link economic activity (monetary) with the environment(physical)
![Page 29: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/29.jpg)
Introduction Model Policy simulations Conclusions
National Accounts
I Economic activity is captured in monetary terms in twoprimary accounts
I Balance sheets: Net worth (asset, liabilities) → Stocks
I Flow of funds: sources and uses of funds → Flows
I Combined in the Integrated Economics and Financial Accounts(ECB quarterly reports)
I Link economic activity (monetary) with the environment(physical)
![Page 30: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/30.jpg)
Introduction Model Policy simulations Conclusions
National Accounts
I Economic activity is captured in monetary terms in twoprimary accounts
I Balance sheets: Net worth (asset, liabilities) → Stocks
I Flow of funds: sources and uses of funds → Flows
I Combined in the Integrated Economics and Financial Accounts(ECB quarterly reports)
I Link economic activity (monetary) with the environment(physical)
![Page 31: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/31.jpg)
Introduction Model Policy simulations Conclusions
National Accounts
I Economic activity is captured in monetary terms in twoprimary accounts
I Balance sheets: Net worth (asset, liabilities) → Stocks
I Flow of funds: sources and uses of funds → Flows
I Combined in the Integrated Economics and Financial Accounts(ECB quarterly reports)
I Link economic activity (monetary) with the environment(physical)
![Page 32: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/32.jpg)
Introduction Model Policy simulations Conclusions
Modeling Framework
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Introduction Model Policy simulations Conclusions
Modeling Framework
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Introduction Model Policy simulations Conclusions
Modeling Framework
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Introduction Model Policy simulations Conclusions
Modeling Framework
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Introduction Model Policy simulations Conclusions
Modeling Framework
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Introduction Model Policy simulations Conclusions
Modeling Framework
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Introduction Model Policy simulations Conclusions
Balance Sheet
Households Production FinancialGovt.
∑Unemp. Workers Capitalists Firms Energy - X Energy - R Banks Central Bank
Capital stock +K +KX +KR +K
Inventories +IN +INX +INV
Cash +Mh +Mk +M 0
Bank Deposits +Dh +Dk −Db 0
Advances −Ab −A 0
Bills +Bb +BCB −B 0
Loans −Lf −LX −LR +L 0∑0 +V h +V k +V f +V X +V R 0 0 −V G +NV
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Introduction Model Policy simulations Conclusions
Transition Matrix
Households Production FinancialGovt.
∑Unemp. Workers Capitalists Firms Energy - X Energy - R Commercial Banks Central Bank
Consumption −Cu −Ch −Ck +S −G 0
Energy −EB +EX +ER 0
Investment +I +IX +IR 0
∆Inventories +∆IN +∆INX 0
Wages +WB −WB 0
Unemp. Bene�ts +UB −UB 0
Bank pro�ts +Πb −Πb 0
Firm pro�ts +Πf −Πf 0
Energy pro�ts +ΠE −ΠX −ΠR 0
CB pro�ts −ΠCB +ΠCB 0
Taxes −Th −T k −T f −TX −TR +T 0
i Advances −raAt−1 +raAt−1 0
i Deposits +rdDht−1 +rdD
kt−1 −rdDt−1 0
i Bills +rbBbt−1 +rbB
CBt−1 −rbBt−1 0
i Loans −rlLft−1 −rlLXt−1 −rlLRt−1 +rlLt−1 0
∆Advances +∆A −∆A 0
∆Cash −∆Ch −∆Ck +∆C 0
∆Deposits −∆Dh −∆Dk +∆D 0
∆Bills +∆Bb +∆BCB −∆B 0
∆Loans +∆Lf +∆LX +∆LR −∆L 0∑0 0 0 0 0 0 0 0 0 0
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Introduction Model Policy simulations Conclusions
Key model assumptions
I Agent's decisions are adaptive, based on past variables
I Decisions are made on real variables, accounts maintained innominal variables
I Agents have a liquidity preference
I Households: depositsI Firms: inventories
I Production requires three complimentary inputs: Labor,Capital, Energy
I Prices are set by producers as markup over costs
I Investment decisions are determined by capacity utilization rate
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Introduction Model Policy simulations Conclusions
Key model assumptions
I Agent's decisions are adaptive, based on past variables
I Decisions are made on real variables, accounts maintained innominal variables
I Agents have a liquidity preference
I Households: depositsI Firms: inventories
I Production requires three complimentary inputs: Labor,Capital, Energy
I Prices are set by producers as markup over costs
I Investment decisions are determined by capacity utilization rate
![Page 42: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/42.jpg)
Introduction Model Policy simulations Conclusions
Key model assumptions
I Agent's decisions are adaptive, based on past variables
I Decisions are made on real variables, accounts maintained innominal variables
I Agents have a liquidity preference
I Households: depositsI Firms: inventories
I Production requires three complimentary inputs: Labor,Capital, Energy
I Prices are set by producers as markup over costs
I Investment decisions are determined by capacity utilization rate
![Page 43: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/43.jpg)
Introduction Model Policy simulations Conclusions
Key model assumptions
I Agent's decisions are adaptive, based on past variables
I Decisions are made on real variables, accounts maintained innominal variables
I Agents have a liquidity preference
I Households: depositsI Firms: inventories
I Production requires three complimentary inputs: Labor,Capital, Energy
I Prices are set by producers as markup over costs
I Investment decisions are determined by capacity utilization rate
![Page 44: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/44.jpg)
Introduction Model Policy simulations Conclusions
Key model assumptions
I Agent's decisions are adaptive, based on past variables
I Decisions are made on real variables, accounts maintained innominal variables
I Agents have a liquidity preference
I Households: depositsI Firms: inventories
I Production requires three complimentary inputs: Labor,Capital, Energy
I Prices are set by producers as markup over costs
I Investment decisions are determined by capacity utilization rate
![Page 45: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/45.jpg)
Introduction Model Policy simulations Conclusions
Key model assumptions
I Agent's decisions are adaptive, based on past variables
I Decisions are made on real variables, accounts maintained innominal variables
I Agents have a liquidity preference
I Households: depositsI Firms: inventories
I Production requires three complimentary inputs: Labor,Capital, Energy
I Prices are set by producers as markup over costs
I Investment decisions are determined by capacity utilization rate
![Page 46: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/46.jpg)
Introduction Model Policy simulations Conclusions
Firms - Production
I Output (Yt) = Sales (St) + change in inventories (∆INt)
I Sales (St) = HH demand (Ct) + Government demand (Gt)I Inventories (INt) = unsold stock of produced goods
I Production process requires three complimentary inputs
I Capital: Kt = Yt/ξYKI Labor:Nt = Yt/ξYNI Energy:Et = Kt/ξKE
I Prices = markup over unit costs times tax
I pt = UCt(1 + θ)(+τ)
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Introduction Model Policy simulations Conclusions
Firms - Production
I Output (Yt) = Sales (St) + change in inventories (∆INt)
I Sales (St) = HH demand (Ct) + Government demand (Gt)I Inventories (INt) = unsold stock of produced goods
I Production process requires three complimentary inputs
I Capital: Kt = Yt/ξYKI Labor:Nt = Yt/ξYNI Energy:Et = Kt/ξKE
I Prices = markup over unit costs times tax
I pt = UCt(1 + θ)(+τ)
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Introduction Model Policy simulations Conclusions
Firms - Investment
I Investment = Inventories growth + capital stock growth
I Desired investment in inventories
I Fraction of past sales as inventoriesI Investment = target stock less existing stock
I Desired investment in capital stock
I Capacity utilization ratioI Investment = depreciation + target capital stock
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Introduction Model Policy simulations Conclusions
Firms - Investment
I Investment = Inventories growth + capital stock growth
I Desired investment in inventories
I Fraction of past sales as inventoriesI Investment = target stock less existing stock
I Desired investment in capital stock
I Capacity utilization ratioI Investment = depreciation + target capital stock
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Introduction Model Policy simulations Conclusions
Firms - Investment
I Investment = Inventories growth + capital stock growth
I Desired investment in inventories
I Fraction of past sales as inventoriesI Investment = target stock less existing stock
I Desired investment in capital stock
I Capacity utilization ratioI Investment = depreciation + target capital stock
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Introduction Model Policy simulations Conclusions
Energy and Emissions
I Energy is supplied by two energy producers
I a high-emissions, non-renewable input XI a 0-emissions, renewable input RI Share of clean energy is exogenously determined (policy
variable)
I Energy production = energy demand by �rms
I price of energy = pEt = UCEt (1 + θ)(1 + τ).Xt
I Xt is an exogenous extraction cost
I Firms and non-renewable energy production → results inemissions
I GHGt = GHGt−1(1− Φ) + (yt + yXt )/ξGE
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Introduction Model Policy simulations Conclusions
Energy and Emissions
I Energy is supplied by two energy producers
I a high-emissions, non-renewable input XI a 0-emissions, renewable input RI Share of clean energy is exogenously determined (policy
variable)
I Energy production = energy demand by �rms
I price of energy = pEt = UCEt (1 + θ)(1 + τ).Xt
I Xt is an exogenous extraction cost
I Firms and non-renewable energy production → results inemissions
I GHGt = GHGt−1(1− Φ) + (yt + yXt )/ξGE
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Introduction Model Policy simulations Conclusions
Energy and Emissions
I Energy is supplied by two energy producers
I a high-emissions, non-renewable input XI a 0-emissions, renewable input RI Share of clean energy is exogenously determined (policy
variable)
I Energy production = energy demand by �rms
I price of energy = pEt = UCEt (1 + θ)(1 + τ).Xt
I Xt is an exogenous extraction cost
I Firms and non-renewable energy production → results inemissions
I GHGt = GHGt−1(1− Φ) + (yt + yXt )/ξGE
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Introduction Model Policy simulations Conclusions
Two experiments
I Experiment 1: Reduction in consumption expenditure
I Experiment 2: Investment in capital and energy productivity
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Introduction Model Policy simulations Conclusions
Two experiments
I Experiment 1: Reduction in consumption expenditure
I Experiment 2: Investment in capital and energy productivity
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Introduction Model Policy simulations Conclusions
Experiment 1 - Reduction in Consumption
I Slow growth hypothesis:
I Consumption↓→Demand→Production↓I →Wages↓→Production↓→Emissions↓
I But what about secondary e�ects of this policy?
I Impact on consumption distribution?I Impact on unemployment?I Impact on government spending?
I Test the above questions with a 10% reduction in consumptionexpenditure
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Introduction Model Policy simulations Conclusions
Experiment 1 - Reduction in Consumption
I Slow growth hypothesis:
I Consumption↓→Demand→Production↓I →Wages↓→Production↓→Emissions↓
I But what about secondary e�ects of this policy?
I Impact on consumption distribution?I Impact on unemployment?I Impact on government spending?
I Test the above questions with a 10% reduction in consumptionexpenditure
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Introduction Model Policy simulations Conclusions
Experiment 1 - Reduction in Consumption
I Slow growth hypothesis:
I Consumption↓→Demand→Production↓I →Wages↓→Production↓→Emissions↓
I But what about secondary e�ects of this policy?
I Impact on consumption distribution?I Impact on unemployment?I Impact on government spending?
I Test the above questions with a 10% reduction in consumptionexpenditure
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Introduction Model Policy simulations Conclusions
Key parameters
Parameter Value Description
Nk 5% Capitalist populationω 1 Unit wage rateκ 1 Labor productivity per unit of laborα1 0.8 MPC incomeα2 0.2 MPC wealthδ 0.1 Depreciation rateτ 0.2 Tax rateθ 0.1 Mark-up on costsε 0.5 Minimum consumptionΦ 0.01 GHG decayφ 0.1 Share of renewable resource
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Introduction Model Policy simulations Conclusions
Experiment 1 - Output
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Introduction Model Policy simulations Conclusions
Experiment 1 - Income
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Introduction Model Policy simulations Conclusions
Experiment 1 - Unemployment
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Introduction Model Policy simulations Conclusions
Experiment 1 - Capital and Energy
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Introduction Model Policy simulations Conclusions
Experiment 1 - Cyclical adjustment
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Introduction Model Policy simulations Conclusions
Experiment 2 - Innovation
I Generic production function of �rms:
I Output: Y = f(K f , L,E
),
I Y=output, K f=�rm capital, L=labor, E=energy
I Generic production function of energy producers:
I E = f(KE ,X
)I KE =Energy capital, X =non-renewable input
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Introduction Model Policy simulations Conclusions
Experiment 2 - Innovation
I Generic production function of �rms:
I Output: Y = f(K f , L,E
),
I Y=output, K f=�rm capital, L=labor, E=energy
I Generic production function of energy producers:
I E = f(KE ,X
)I KE =Energy capital, X =non-renewable input
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Introduction Model Policy simulations Conclusions
Experiment 2 - Innovation
I Two innovation parameters
I Capital per unit of output: K = Y /ξYKI Energy per unit of capital: E = K/ξKE
I ξ is a technology parameter
I Increase in values of ξ implies technological innovation(e�ciency)
I Lower input requirement
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Introduction Model Policy simulations Conclusions
Experiment 2 - Innovation
I Two innovation parameters
I Capital per unit of output: K = Y /ξYKI Energy per unit of capital: E = K/ξKE
I ξ is a technology parameter
I Increase in values of ξ implies technological innovation(e�ciency)
I Lower input requirement
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Introduction Model Policy simulations Conclusions
Experiment 2 - Innovation
I We can derive the following identity
E ≡ Y
ξYK ξKE
I Scenario 1
I Assuming ξYK = ξKE = 1 and there is no change (∆ξ = 0)I if Y ↓→ K ↓→ E ↓ (low growth scenario)
I Scenario 2
I If innovation is allowed (∆ξ > 0) and output goes up Y > 0I then for the energy to go down (E < 0) the following
condition must hold
ξYK + ξKE > Y
I the two components collectively must show a higher growththan output
I Outcomes might vary depending which component is growing
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Introduction Model Policy simulations Conclusions
Experiment 2 - Innovation
I We can derive the following identity
E ≡ Y
ξYK ξKE
I Scenario 1
I Assuming ξYK = ξKE = 1 and there is no change (∆ξ = 0)I if Y ↓→ K ↓→ E ↓ (low growth scenario)
I Scenario 2
I If innovation is allowed (∆ξ > 0) and output goes up Y > 0I then for the energy to go down (E < 0) the following
condition must hold
ξYK + ξKE > Y
I the two components collectively must show a higher growththan output
I Outcomes might vary depending which component is growing
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Introduction Model Policy simulations Conclusions
Experiment 2 - Innovation
I We can derive the following identity
E ≡ Y
ξYK ξKE
I Scenario 1
I Assuming ξYK = ξKE = 1 and there is no change (∆ξ = 0)I if Y ↓→ K ↓→ E ↓ (low growth scenario)
I Scenario 2
I If innovation is allowed (∆ξ > 0) and output goes up Y > 0I then for the energy to go down (E < 0) the following
condition must hold
ξYK + ξKE > Y
I the two components collectively must show a higher growththan output
I Outcomes might vary depending which component is growing
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Introduction Model Policy simulations Conclusions
Experiment 2 - Three innovation scenarios
Scenario ξYK ξKE
Business-as-usual BAU 1 1Increase in capital e�ciency only I 1.2 1Increase in energy e�ciency only II 1 1.2Increase in capital and energy e�ciency III 1.2 1.2
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Introduction Model Policy simulations Conclusions
Experiment 2 - Output
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Introduction Model Policy simulations Conclusions
Experiment 2 - Income
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Introduction Model Policy simulations Conclusions
Experiment 2 - Unemployment and emissions
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Introduction Model Policy simulations Conclusions
Conclusions
I Experiment 1 - Reduction in consumption expenditure
I Double burden on the government: high unemploymenttransfers, lower tax revenues
I Experiment 2 - Innovation in capital and energy productivity
I Little change on aggregate demand, reduction of inequality byredistributing from capitalists to workers
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Introduction Model Policy simulations Conclusions
Conclusions
I Experiment 1 - Reduction in consumption expenditure
I Double burden on the government: high unemploymenttransfers, lower tax revenues
I Experiment 2 - Innovation in capital and energy productivity
I Little change on aggregate demand, reduction of inequality byredistributing from capitalists to workers
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Introduction Model Policy simulations Conclusions
Further Possible Experiments
I Endogenous tax
I Endogenous depreciation rate
I Endogenous labor productivity
I endogenous non-renewable input X extraction costs
I Higher share of renewable energy
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Introduction Model Policy simulations Conclusions
Future extensions
I HH investment in �nancial and physical assets
I Distinction between �rm owning capitalists and bank owningcapitalists
I Pro�t, capital gain taxes
I Employment in multiple sectors
I Endogenous technological change
I Endogenous energy allocation
I Output and population growth
I Model calibration: (Eurostat data for the EU)
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Introduction Model Policy simulations Conclusions
Modeling framework
I The model factors in all major sectors in an economy
I Analytical and tractable
I Can be increased in complexity
I Allows testing various policy scenarios → establishcounter-factuals
I Can be adapted for country/world level analysis
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Introduction Model Policy simulations Conclusions
Modeling framework
I The model factors in all major sectors in an economy
I Analytical and tractable
I Can be increased in complexity
I Allows testing various policy scenarios → establishcounter-factuals
I Can be adapted for country/world level analysis
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Introduction Model Policy simulations Conclusions
Modeling framework
I The model factors in all major sectors in an economy
I Analytical and tractable
I Can be increased in complexity
I Allows testing various policy scenarios → establishcounter-factuals
I Can be adapted for country/world level analysis
![Page 83: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/83.jpg)
Introduction Model Policy simulations Conclusions
Modeling framework
I The model factors in all major sectors in an economy
I Analytical and tractable
I Can be increased in complexity
I Allows testing various policy scenarios → establishcounter-factuals
I Can be adapted for country/world level analysis
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Introduction Model Policy simulations Conclusions
Modeling framework
I The model factors in all major sectors in an economy
I Analytical and tractable
I Can be increased in complexity
I Allows testing various policy scenarios → establishcounter-factuals
I Can be adapted for country/world level analysis
![Page 85: Growth, Distributions, and the Environment · 2018-11-29 · Introduction Model Policy simulations Conclusions Growth, Distributions, and the Environment: A Modeling Framework for](https://reader033.vdocuments.net/reader033/viewer/2022042200/5e9f55a9a59e5067ac0d6520/html5/thumbnails/85.jpg)
Introduction Model Policy simulations Conclusions
Thank you!
References:I Fontana, G., and M. Sawyer (2013): Post-Keynesian and Kaleckian thoughts on
ecological macroeconomics, European Journal of Economics and EconomicPolicies: Intervention, 10(2).
I Godley, W., and M. Lavoie (2007): Monetary Economics: An IntegratedApproach to Credit, Money, Income, Production and Wealth. PalgraveMacmillan, New York.
I Jackson, T. (2009): Prosperity without Growth: Economics for Finite Planet.Routledge.
I Pindyck, R. S. (2013): Climate Change Policy: What Do the Models Tell Us?,Journal of Economic Literature, 51(3), 860-872.
I Rezai, A., Taylor, L. and Mechler, R (2013). Ecological macroeconomics: Anapplication to climate change Ecological Economics, 85, 69-76.
I dos Santos, C. H., and Zezza, G. (2008): A Simplied, 'Benchmark', Stock-FlowConsistent Post-Keynesian Growth Model, Metroeconomica, 59(3), 441-478.
I Taylor, L. (2004): Reconstructing Macroeconomics: Structuralist Proposals andCritiques of the Mainstream. Harvard University Press.
I Taylor, L., and D. Foley (2014): Greenhouse Gasses and Cyclical Growth, INETWorking Paper 38.