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Large scale, multi-sector DSGE model as a climate policy assessment tool - Macroeconomic Mitigation Options (MEMO) model for Poland

Author

Listed:
  • Maciej Bukowski
  • Pawel Kowal

Abstract

We assess the macroeconomic impact on Polish economy of the diversified package of about 120 different GHG mitigation levers, which were identified in the bottom-up sectoral analysis. For this purpose, we constructed a large scale, multi-sector dynamic stochastic general equilibrium (DSGE) model of Polish economy. Despite its size (compared to most of the other models inthis class) our model has been directly calibrated on the latest statistical data for Poland and the EU. This applies both with respect to the calibration of its steady-state and dynamic properties. In the second stage, we focused on empirical moments and among them on relative standard deviations and intervariable correlation structure, as those two aspects are of primary importance for model’s predictive quality. We managed to adjust our model to dynamic properties of the data with only few macroeconomic shocks. In our opinion, this means an important step forward as compared to the other large scale DSGE models like seminal Smets-Wouters one. Good empirical properties of our model justify its application as a macroeconomic policy assessment tool in medium and long term horizon. In contrast to the traditional CGE approach, DSGE modeling enables us to analyze full dynamic, year-by-year, macroeconomic response to the GHG abatement policies over the entire 2010- 2030 period. We present conditional macroeconomic projections of the entire abatement package as well as its decomposition into several major subgroups including: investments in energy capacity (fuel switch), industry or agriculture interventions, and energy and fuel efficiency improvements. We considered alternative government tax and expenditure closures in order to compare the macroeconomic results depending on the fiscal policy measures. This allowed us to construct detailed macroeconomic versions of marginal abatement curves which show the macroeconomic effects related to carbon abatement for Poland’s economy for every individual levers and the package as a whole.

Suggested Citation

  • Maciej Bukowski & Pawel Kowal, 2010. "Large scale, multi-sector DSGE model as a climate policy assessment tool - Macroeconomic Mitigation Options (MEMO) model for Poland," IBS Working Papers 3/2010, Instytut Badan Strukturalnych.
  • Handle: RePEc:ibt:wpaper:wp032010
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    References listed on IDEAS

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    1. Maciej Bukowski & Sebastian Dyrda & Pawel Kowal, 2008. "Assessing Effects of Joining Common Currency Area with Large-Scale DSGE model: A Case of Poland," IBS Working Papers 3/2008, Instytut Badan Strukturalnych.
    2. Mortensen, Dale T, 1989. " The Persistence and Indeterminancy of Unemployment in Search Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(2), pages 347-370.
    3. Sir Nicholas Stern, 2006. "What is the Economics of Climate Change?," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 7(2), pages 1-10, April.
    4. Pissarides, C., 1990. "Unemployment And The Persistence On Employment Shocks," Papers 377, London School of Economics - Centre for Labour Economics.
    5. Fischer, Carolyn & Newell, Richard G., 2008. "Environmental and technology policies for climate mitigation," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 142-162, March.
    6. Stephen Murchison & Andrew Rennison & Zhenhua Zhu, 2004. "A Structural Small Open-Economy Model for Canada," Staff Working Papers 04-4, Bank of Canada.
    7. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, September.
    8. Pawel Kowal, 2005. "An Algorithm for Solving Arbitrary Linear Rational Expectations Model," GE, Growth, Math methods 0501001, EconWPA, revised 12 Jun 2005.
    9. William D. Nordhaus, 2006. "The "Stern Review" on the Economics of Climate Change," NBER Working Papers 12741, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Carlos Benavides & Luis Gonzales & Manuel Diaz & Rodrigo Fuentes & Gonzalo García & Rodrigo Palma-Behnke & Catalina Ravizza, 2015. "The Impact of a Carbon Tax on the Chilean Electricity Generation Sector," Energies, MDPI, Open Access Journal, vol. 8(4), pages 1-27, April.
    2. S. Scrieciu & Valerie Belton & Zaid Chalabi & Reinhard Mechler & Daniel Puig, 2014. "Advancing methodological thinking and practice for development-compatible climate policy planning," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 19(3), pages 261-288, March.
    3. Konstantins Benkovskis & Eduards Goluzins & Olegs Tkacevs, 2016. "CGE model with fiscal sector for Latvia," Working Papers 2016/01, Latvijas Banka.
    4. repec:eee:enepol:v:118:y:2018:i:c:p:69-76 is not listed on IDEAS

    More about this item

    Keywords

    Muti-sector DSGE models; GHG abatement; CO2 mitigation; climate policy; conditional forecasts; energy efficiency; energy and the macroeconomy; government policy; energy forecasting; technological change;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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