TY - JOUR
T1 - The EIRIN Flow-of-funds Behavioural Model of Green Fiscal Policies and Green Sovereign Bonds
AU - Monasterolo, Irene
AU - Raberto, Marco
PY - 2017
Y1 - 2017
N2 - Fiscal and monetary policies, as well as new financial instruments, could play a key role to meet the Paris Agreement. However, deep uncertainty characterizes their design and their potential effects on growth, financial and credit market stability, and inequality. We develop the EIRIN flow-of-funds behavioural model to simulate the introduction of green fiscal policies and green sovereign bonds, and we display their effects on firms' investments in the brown and green sector, on unemployment, on the credit and bonds market. EIRIN is Stock-Flow Consistent and is rooted on a balance sheet approach. It adopts a Leontief production function with no substitution of the production factors, i.e., Labour, Capital, and Raw Materials. Its sectors are endowed with adaptive behaviours and expectations, and interact with the others and the foreign sector through a set of markets. Simulations show that green public policies can promote green growth by influencing firms’ expectations and the credit market. Green sovereign bonds represent a short-term win-win solution, while green fiscal measures have higher immediate distributive effects that induce negative feedbacks on the economy. These results are influenced by the conditions (fiscal, budgetary and public debt/GDP) in which both measures are implemented.
AB - Fiscal and monetary policies, as well as new financial instruments, could play a key role to meet the Paris Agreement. However, deep uncertainty characterizes their design and their potential effects on growth, financial and credit market stability, and inequality. We develop the EIRIN flow-of-funds behavioural model to simulate the introduction of green fiscal policies and green sovereign bonds, and we display their effects on firms' investments in the brown and green sector, on unemployment, on the credit and bonds market. EIRIN is Stock-Flow Consistent and is rooted on a balance sheet approach. It adopts a Leontief production function with no substitution of the production factors, i.e., Labour, Capital, and Raw Materials. Its sectors are endowed with adaptive behaviours and expectations, and interact with the others and the foreign sector through a set of markets. Simulations show that green public policies can promote green growth by influencing firms’ expectations and the credit market. Green sovereign bonds represent a short-term win-win solution, while green fiscal measures have higher immediate distributive effects that induce negative feedbacks on the economy. These results are influenced by the conditions (fiscal, budgetary and public debt/GDP) in which both measures are implemented.
UR - http://www.sciencedirect.com/science/article/pii/S0921800916306000
U2 - 10.1016/j.ecolecon.2017.07.029
DO - 10.1016/j.ecolecon.2017.07.029
M3 - Journal article
SN - 0921-8009
VL - 144
SP - 228
EP - 243
JO - Ecological Economics
JF - Ecological Economics
ER -