Dafermos, Yannis, McConnel, Andrew, Nikolaidi, Maria ORCID: https://orcid.org/0000-0002-8188-5482, Storm, Servaas and Yanovski, Boyan (2024) Macroeconomic modeling in the Anthropocene: why the E-DSGE framework is not fit for purpose and what to do about it. [Working Paper] (doi:10.36687/inetwp229)

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Abstract

Recent years have seen an increasing use of environmental dynamic stochastic general equilibrium (E-DSGE) models for analyzing the macroeconomic effects of the climate crisis. This paper explores to what extent these models are fit for purpose. We identify the limitations of the benchmark E-DSGE framework and explain how these limitations restrict the ability of this framework to meaningfully capture the macroeconomics of the climate crisis. We then explain how the assumptions behind these limitations can be relaxed, but argue that simply relaxing some of these assumptions in isolation is insufficient to address the problem. We therefore call for a broader use of other macroeconomic models, such as ecological stock-flow consistent (E-SFC) and ecological agent-based (E-AB) models, that address these limitations simultaneously. We explain how these models do not suffer from the pitfalls of the E-DSGE framework and outline how they need to improve to increase their usefulness as tools that can inform macroeconomic policy making in the Anthropocene.

Item Type:	Working Paper
Uncontrolled Keywords:	climate crisis, DSGE modeling, stock-flow consistent modeling, agent-based modeling, green macroeconomic policies, green finance
Subjects:	G Geography. Anthropology. Recreation > GN Anthropology H Social Sciences > H Social Sciences (General) H Social Sciences > HB Economic Theory
Faculty / School / Research Centre / Research Group:	Greenwich Business School Greenwich Business School > Political Economy, Governance, Finance and Accountability (PEGFA) Journal of Economic Literature Classification > Political Economy, Governance, Finance and Accountability (PEGFA) Greenwich Business School > School of Accounting, Finance and Economics
Last Modified:	22 Sep 2025 10:40
URI:	https://gala.gre.ac.uk/id/eprint/51059

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