Emergence of New Economics Energy Transition Models: A Review

Hafner, Sarah; Anger-Kraavi, Annela; Monasterolo, Irene; Jones, Aled

doi:10.1016/j.ecolecon.2020.106779

Cited by 52 publications

(36 citation statements)

References 84 publications

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“…Bernanke and Blinder (1992) and Evans (1996, 1999) identify monetary policy shocks using the assumption that they have no contemporaneous impact on inflation and output. 2 This set of identifying restrictions, like the entire New Keynesian enterprise, falls squarely in the Friedman worldview. In testimony before Congress, Friedman (1959) said: "Monetary and fiscal policy is rather like a water tap that you turn on now and that then only starts to run 6, 9, 12, 16 months from now.…”

Section: Before the Stormmentioning

confidence: 99%

On DSGE Models

Christiano¹,

Eichenbaum²,

Trabandt

2018

Journal of Economic Perspectives

168

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The outcome of any important macroeconomic policy change is the net effect of forces operating on different parts of the economy. A central challenge facing policymakers is how to assess the relative strength of those forces. Economists have a range of tools that can be used to make such assessments. Dynamic stochastic general equilibrium (DSGE) models are the leading tool for making such assessments in an open and transparent manner. We review the state of mainstream DSGE models before the financial crisis and the Great Recession. We then describe how DSGE models are estimated and evaluated. We address the question of why DSGE modelers—like most other economists and policymakers—failed to predict the financial crisis and the Great Recession, and how DSGE modelers responded to the financial crisis and its aftermath. We discuss how current DSGE models are actually used by policymakers. We then provide a brief response to some criticisms of DSGE models, with special emphasis on criticism by Joseph Stiglitz, and offer some concluding remarks.

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Section: Before the Stormmentioning

confidence: 99%

On DSGE Models

Christiano¹,

Eichenbaum²,

Trabandt

2018

Journal of Economic Perspectives

168

View full text Add to dashboard Cite

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“…Non-equilibrium models, such as Agent-Based Models (ABM), Stock-Flow Consistent models (SFC), and network models (see Hafner et al, 2020) for an overview of different non-equilibrium models) have been touted as better able to capture key features of climate-related risks such as non-linearity, path-dependency, structural breaks and radical uncertainty (Monasterolo et al, 2019;OECD, 2020). Indeed, the low-carbon transition can be best understood as a complex out-of-equilibrium process, with long-term impacts, potential amplification of shocks, interactions among multiple agents, as well as structural change and uncertain dynamics (Hafner et al, 2020;Hepburn et al, 2020b;Lamperti et al, 2019;Mercure et al, 2016). By relying on non-equilibrium models, central bankers could significantly refine their scenario analyses and improve their ability to apprehend climate-related risks in at least two regards.…”

Section: Insights and Limitations Of Non-equilibrium Modelsmentioning

confidence: 99%

Central banks, financial stability and policy coordination in the age of climate uncertainty: a three-layered analytical and operational framework

et al. 2020

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This paper explores how climate change and the transition to a low-carbon economy pose new systemic financial risks (so-called Green Swans), and the role of central banks in addressing them within their financial stability mandate. It does so by developing a three-layered analytical framework that central banks could use to shape their climate-related monetary and financial policies. First, central banks have already started to revisit their backward-looking risk models for the purpose of integrating forward-looking climate-related risks. Second, given the limitations of existing climate-economy models in a context of radical uncertainty, we argue that future climate scenario analysis should rely on systems-based approaches such as non-equilibrium models and more qualitative tools such as those provided by a socio-technical perspective. However, even these new approaches will not suffice from the perspective of financial stability: climate-related risks will remain largely unhedgeable as long as a system-wide and structural transformation is not undertaken, including an unprecedented level of cooperation between central banks, fiscal authorities, the private and public sectors at large, civil society, and the international community. Third, and as a result of the first two points, embracing climate-related uncertainty means that central banks play a new role: helping to coordinate the policies needed to fight climate change, so as to fulfil their own mandate of financial stability. To this end, we make a few specific policy proposals. Key policy insights:. Central banks' traditional risk models do not enable them to identify climaterelated systemic risks (Green Swans). . Adopting new forward-looking and non-equilibrium modelling approaches is necessary to better appreciate the nature of climate-related risks, but it is not sufficient. . To continue fulfilling their mandate of financial stability over longer time horizons than those traditionally considered, central banks must also get involved in policy coordination to mitigate climate change. . This includes exploring which policy mixes (fiscal-monetary-prudential) can better address the climate imperatives ahead; considering climate stability as a global public good to be supported through reforms of the international monetary and financial system; and systematizing the integration of long-term sustainability criteria in both private and public sectors.

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“…Furthermore, it is important to consider that there is a path dependency in the economy which can be represented particularly well in an empirically based, dynamic model with high disaggregation [37]. For an overview of approaches and challenges for macro-economic models that have a special focus on energy economy, see, e.g., [38,39].…”

Section: Introduction 1backgroundmentioning

confidence: 99%

Integrated Multidimensional Sustainability Assessment of Energy System Transformation Pathways

et al. 2021

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Sustainable development embraces a broad spectrum of social, economic and ecological aspects. Thus, a sustainable transformation process of energy systems is inevitably multidimensional and needs to go beyond climate impact and cost considerations. An approach for an integrated and interdisciplinary sustainability assessment of energy system transformation pathways is presented here. It first integrates energy system modeling with a multidimensional impact assessment that focuses on life cycle-based environmental and macroeconomic impacts. Then, stakeholders’ preferences with respect to defined sustainability indicators are inquired, which are finally integrated into a comparative scenario evaluation through a multi-criteria decision analysis (MCDA), all in one consistent assessment framework. As an illustrative example, this holistic approach is applied to the sustainability assessment of ten different transformation strategies for Germany. Applying multi-criteria decision analysis reveals that both ambitious (80%) and highly ambitious (95%) carbon reduction scenarios can achieve top sustainability ranks, depending on the underlying energy transformation pathways and respective scores in other sustainability dimensions. Furthermore, this research highlights an increasingly dominant contribution of energy systems’ upstream chains on total environmental impacts, reveals rather small differences in macroeconomic effects between different scenarios and identifies the transition among societal segments and climate impact minimization as the most important stakeholder preferences.

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Emergence of New Economics Energy Transition Models: A Review

Cited by 52 publications

References 84 publications

On DSGE Models

On DSGE Models

Central banks, financial stability and policy coordination in the age of climate uncertainty: a three-layered analytical and operational framework

Integrated Multidimensional Sustainability Assessment of Energy System Transformation Pathways

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