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

• 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:
1.
Carbon taxation
2.
Work time reduction

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

• Research question: How to manage the UK economy within environmental limits whilst delivering increasing wellbeing?
• Research process:
1.
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
2.
Policy testing
3.
Introduce microeconomic behaviour (endogenous consumption / work / investment choices)

• 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



Y

Y

AK
1
I

L


ˆ  
Y *
(Work.Pop* F part.ratio- F)/adj.time
 

K *
 
( K
*   
) Y *
LR

)

Consumption sector
C
*  
( C
0
*

C ) /adj.time

• Complete the core model:
– Prices, interest rate, wages
– Banking system, finance, money creation
– Government revenues and expenditures
• Insert environmental limits:
– Energy sector
– Climate change

• 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?

www.neweconomics.org
Emanuele.campiglio@neweconomics.org
James.meadway@neweconomics.org