1 / 17

Ecological Economics Lecture 09 20th May 2010

Ecological Economics Lecture 09 20th May 2010. Tiago Domingos Assistant Professor Environment and Energy Section Department of Mechanical Engineering. Collaboration: Rui Pedro Mota rmota@ist.utl.pt.

chapa
Download Presentation

Ecological Economics Lecture 09 20th May 2010

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Ecological EconomicsLecture 0920th May 2010 Tiago DomingosAssistant ProfessorEnvironment and Energy SectionDepartment of Mechanical Engineering Collaboration: Rui Pedro Mota rmota@ist.utl.pt

  2. What part of the change in national accounts aggregates at current prices stems from a change in the quantities produced and what part stems from a change in prices? Temporal Comparison - Real vs Nominal • Nominal GDP in: • 2007, €200 • 2008, €575 • Real GDP in 2007 prices: • 2007, €200 • 2008, €270 Price Level

  3. GDP Deflator

  4. Nominal and real GDP are calculated as shown above. GDP Deflatoryear x = (Nominal GDPyear x ÷ Real GDPyear x ) * 100. Nominal GDP increases because production increases and because prices increase (Inflation). Use the GDP deflator to take out the effect of inflation and reveal real GDP. The Base year for current SNA is 2000. Inflation rate = rate of change of price level, 130% = (230-100)/100*100 Price Level and GDP deflator

  5. Real vs. Nominal (Portugal) Source: AMECO database

  6. Consumer Price Index (CPI) It is based on a fixed (changes every 5 years) basket of goods that are normally an important part of households’ consumption. 1 – Fix the Basket - which prices are most important to the typical consumer? Put weights by surveying consumers and finding the basket of goods and services that the typical consumer buys. 2 – Find the prices for each good and service in the basket. 3 – Compute the basket’s cost (price * quantity) 4 – Choose a base year and compute the CPI Formula 5 – Compute inflation as the rate of change in CPI Price Level and CPI

  7. CPI and Inflation

  8. GDP deflator vs CPI • Both reflect the current level of prices relative to the level of prices in the base year. CPI GDP Deflator • Prices of all goods and services produced domestically. • Compares the price of currently produced goods. • Prices of all goods and services bought by consumers. • Compares a fixed basket of goods and services.

  9. GDP deflator vs CPI (Portugal) Oil Price shock, 1973 Source: AMECO database and UN data

  10. Calvin and Hobbes on time preference What is more valuable: enjoyment now or later? Time preference or discount rate is the rate at which the agent is willing to postpone consumption. Is Calvin’s discount rate high or low, with regard to smacking Susie? The role of uncertainty and sunk costs.

  11. Calvin and Hobbes on time preference Very high discount rate is not prudent. In the presence of uncertainty, discount the future at its lowest possible rate. (Weitzman, 1998 JEEM)

  12. Discounted Utilitarianism Representative household’s welfare at time t Utility depends on present consumption bundle. Welfare depends on the present and future utilities. Discount factor: €1 in T periods from now, is worth exp(−rT ) today. Same applies to utility. In discrete time, is the utility discount rate, i.e., the rate at which the value of a small increment of utility changes as its date is delayed.

  13. Ouput is produced using capital and labor (Assume a constant population normalized to 1). Capital does not depreciate. There is no technological progress. The output is either consumed or invested, i.e., added to the capital stock (as in Solow’s model) The social planner (benevolent dictator) chooses how much the representative household should consume/invest (add to capital to provide consumption in future) Discounted Utilitarianism Ramsey Model s.t.

  14. Any solution must obey: If the interest rate is the marginal productivity of capital, then the Ramsey rules rewrites as Discounted Utilitarianism Ramsey Model - Instantaneous elasticity of substitution between consumption in two dates

  15. Discounted Utilitarianism Elasticity of substitution between consumption at two points in time t and s, is given by Taking the limit as s converges to t, it is obtained the inverse of the negative elasticity of marginal utility The larger the elasticity the easier it is to forgo current consumption.

  16. Ramsey Rule Ro – Discount rate. Used to compare the welfare of generations living in different times. h – Curvature of utility function. Aversion to inequality across/within generations. How peoples’ wellbeing changes as income increases. Large h means larger aversion to intertemporal inequality. Ro and h depend on peoples’ preferences. G is related to economic growth and technological progress.

  17. Ramsey Rule with technology (Barro and Sala-i-Martin, p. 97) Consumption per unit of effective labor Consumption per capita Absolute consumption

More Related