Modelling transition to low carbon, efficient economy - large scale DSGE model for Macedonia - Institute for Structural Research

Transcription

1 Modelling transition to low carbon, efficient economy - large scale DSGE model for Macedonia - Institute for Structural Research (Instytut Badań Strukturalnych) Maciej Bukowski

2 Introduction Macroeconomic models are tools that: Allow us to quantify the economic costs and benefits of public policies both ex-post, and ex-ante, Understand the causality (what comes first) of economic processes, Forecast the economic impact on domestic economy of external shocks, In principle they are abstract mathematical objects but they can be built in a user friendly manner. 2

3 Major types (CGE vs DSGE) There is a broad literature on CGE modeling of environmental policies both on country and multi-country level, DSGE modeling program probably forms the most dynamic branch of contemporary macroeconomics. There are several advantages of this approach including Tractability Computability Well established modeling tradition and availability of software (GAMS) At the same time however CGE models, although widely used in ex-ante policy assessment, do not belong to the contemporary main stream macroeconomics that concentrates rather on DSGE (Dynamic Stochastic General Equilibrium) type of models. It evolved as the unification of the neoclassical RBC (real business cycle) approach with the neo-keynesian methodology (macroeconomics of market frictions and imperfections) ; It has been widely used in certain fields of macroeconomic policy (monetary, fiscal) and recently started to expand on other fields; Due to computational issues DSGE models are typically limited with respect to the number of variables under consideration e.g. to the available disaggregation. 3

4 Our approach (LS - DSGE) CGE complexity DSGE flexibility Large scale DSGE 4

5 Models 5

6 Macedonia model concept large scale, multisector DSGE model with rich representation of government revenues (VAT, PIT, CIT, UE transfers etc) and expenditures (public consumption, public investment, transfers), production structure following the KLEMS standard (K - capital, L labor, E energy, M materials) full I/O table included labor market (employment, unemployment), price and wage rigidities, monetary policy (inflation), and climate policy. Macedonia DSGE model User interface enables non-specialists to use the model lets the user to analyze the historical data and prepare forecasts, offers large flexibility in making the simulation assumptions and constructing scenarios, presents the results in the transparent way and communicates with office packages (i.e. MS Office) 6

7 Analyzing the data 7

8 Exporting the results 8

9 Exporting the figures 9

10 Making simulations

11 Simulation example (1) 11

12 Simulation example (2) 12

13 CAST Simulation toolbox IBS CAST (Climate Assesment Simulation Toolbox) is an integrated set of tools composed of: 1. BAU module (Business As Usuall): Forms constraint for desired abatement levels in energy sectors (EU policy) utilized later on by MIND module 2. MIND module (Microeconomic Investment Decisions) Computes optimal package of investment in energy generation and prepares information for MEMO model for each of over 120 individual mitigation levers including future CAPEX & OPEX 3. DSGE MEMO model (MacroEconomic Mitigation Options ) In the Kalman-type filtering procedure conditional dynamic forecast of modeled variables is prepared 13

14 Climate simulation procedure Stage 3: MEMO model (DSGE) Utilize the MIND data to prepare information of future private/public expenditures, taxes, emissions etc Take model solution, information, and use Kalman smoother procedure, and make forecast Take micro data (McKinsey ) for >120 different mitigation levers Calculate abatement, costs, gov subsidy, find the optimal package Stage 2: MIND module Stage 1: BAU module Take data on GDP, energy consumption, GHG emissions etc. for as many countries and periods as possible Estimate econometrically convergence rates and apply them to individual countries/sectors form BAU 14

15 GHG emissions in mln tons (CO2eq) Abatement potential (Poland) chemical process optimization mixed energy/fuel efficiency agriculture interventions industry CCS and distrib.maintainance energy efficiency fuel efficiency energy sector investments

16 VAT Asses an economic impact of the package Closure Variable GHG emissions GDP Value Added Employment Welfare Government expenditures Government revenues

17 Deviation from BAU in percent Role of government Public consumption Social transfers VAT PIT

18 Dev. from BAU in percent Role of subpackages 2.0 Social transfer closure energy sector investments mixed energy/fuel efficiency fuel efficiency energy efficiency chemical process optimization industry CCS and distribution maintainance agriculture interventions 18

19 Full MAC-ρ curve (2030) VAT closure,

20 Basic conclusions DSGE modeling framework can successfully be used for an assessment of public policies including climate and energy policy. Large scale, multisector DSGE models combine advantages of both CGE and DSGE modeling approach; Flexible user interface can make your life much easier, It would be unwise to start from scratch MEMO model and CAST package could be a very good staring point for Macedonia; 20

21 Thank you for your attention