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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?

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Modelling the Great Transition

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  1. Modelling the Great Transition Emanuele Campiglio James Meadway Istanbul – ESEE Conference - 2011

  2. 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: • Policy analysis tools • Appropriate economic theory We need a model!

  3. 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: • Carbon taxation • Work time reduction

  4. A good low-growth scenario

  5. What next? • Other countries’ application (UK, US, Italy, Austria, New Zealand..) • Economic theory refinement and expansion: • Money • Banking system • Endogenous technical change • Energy sector • Climate change economics • Rest of the world (trade, migration..) • Methodology refinement (system dynamics literature)

  6. The Great Transition model • Research question: How to manage the UK economy within environmental limits whilst delivering increasing wellbeing? • Research process: • 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 • Policy testing • Introduce microeconomic behaviour (endogenous consumption / work / investment choices)

  7. 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

  8. The core model

  9. Production in LowGrow

  10. Population dynamics

  11. Labor force

  12. Capital stock

  13. Consumption sector  Banking sector

  14. Government

  15. 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

  16. Energy sector sketch

  17. 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?

  18. Thanks! www.neweconomics.org Emanuele.campiglio@neweconomics.org James.meadway@neweconomics.org

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