Download Modelling the Great Transition

Modelling the Great
Transition
Emanuele Campiglio
James Meadway
Istanbul – ESEE Conference - 2011
nef Great Transition Initiative
• Towards a new economic system:
• Widespread wellbeing
• Environmental sustainability (energy, climate)
• Fair distribution of wealth
• But: How to get there?
• We need:
1. Policy analysis tools
2. Appropriate economic theory
We need a model!
Starting reference
• Peter Victor’s LOWGROW Model
(2008)
• Macroeconomic model of the
Canadian Economy
• System dynamics methodology
• Main result: using the right
policies, it could be possible to
have a high employment
sustainable economy without
growth.
• Main policies:
1.
2.
Carbon taxation
Work time reduction
A good low-growth scenario
What next?
1. Other countries’ application (UK, US, Italy,
Austria, New Zealand..)
2. Economic theory refinement and expansion:
–
–
–
–
–
–
Money
Banking system
Endogenous technical change
Energy sector
Climate change economics
Rest of the world (trade, migration..)
3. Methodology refinement (system dynamics
literature)
The Great Transition model
• Research question: How to manage the UK economy
within environmental limits whilst delivering increasing
wellbeing?
• Research process:
1.
Build a macroeconomic model of the UK economy
•
System dynamics methodology
•
Core economic model
•
Environmental limits; Finance; Wellbeing; Technical change; …
•
Data collection; functions estimation; calibration
2.
Policy testing
3.
Introduce
microeconomic
behaviour
consumption / work / investment choices)
(endogenous
Main references
•
•
•
•
•
•
•
Peter Victor’s LOWGROW
Yamaguchi’s Macroeconomic dynamics
David Wheat’s Macrolab
Tom Fiddaman’s FREE
Millennium Institute’s T21
Neoclassical models: Dice/Rice, Witch
Growth theory
The core model
1 
Y=
min
(aggr.
demand,
inventory)
Y  min (Desired
full
GDP)
AK
L capacity
Y output,
C
 Ioutput+
G
Production in LowGrow
Population dynamics
Labor force
*
*  Y
ˆ
L*
ˆ
F  (Work.Pop*
SR / w F)/adj.time
L  (L F part.ratioL) /adj.time
Capital stock
*
*
ˆ
K

(K
K  (1K)
)YLR*/adj.time
/(i   )
Consumption sector
*
ˆ *(C
C
cBanking
sector
f (i, p,..)
C
cY
C)d /adj.time
0 
Government
Next steps
• Complete the core model:
– Prices, interest rate, wages
– Banking system, finance, money creation
– Government revenues and expenditures
• Insert environmental limits:
– Energy sector
– Climate change
Energy sector sketch
Next steps
• Complete the core model:
– Prices, interest rate, wages
– Banking system, finance, money creation
– Government revenues and expenditures
• Insert environmental limits:
– Energy sector
– Climate change (damage function?)
• Calibrate the model  Numerical simulations:
– What mix of policies is needed?
– How to finance the transition?
Thanks!
www.neweconomics.org
[email protected]
[email protected]