Research

Although the case for a swift climate transition is clear, its macro-financial viability remains uncertain. To shed light on the macroeconomic and financial response to deep mitigation trajectories controlled by carbon pricing, we integrate a process-based integrated assessment model into a macroeconomic agent-based model. The hybrid framework allows translating energy systems transformations into macro-financial outcomes at business cycle frequency and volatility. The results reveal that rapid transitions induced by fast-growing carbon prices significantly impact unemployment, inflation, and income distribution. Stabilization policies reduce these economic fluctuations though not completely so in 1.5°C compatible scenarios. Our paper emphasizes the need for coordinating climate and macroeconomic policy during decarbonization. Additionally, it showcases how model integration can lead to a better understanding of the economic implications of low-carbon futures.

The macroeconomic consequences of energy shocks, their distributional effects, and the potential remedies have recently scaled up the EU policy agenda. In this paper, we employ an agent-based, stock-flow consistent model empirically calibrated to the EU27 economy to evaluate the macroeconomic effects of an energy price shock akin to that which took place in 2022. Our focus is on a scenario in which the economy experiences a sudden, sharp increase in the price of imported fossil fuels, which affects the price of energy and thereby firms’ production costs and output prices. We show that the magnitude and persistence of the resulting inflationary episode, as well as the effects on functional income distribution, employment and economic activity, strongly depend on government intervention, the sensitivity of nominal wage claims to inflation, and the extent to which increases (and subsequent decreases) in the price of energy inputs are passed on into final output prices. We find that an empirically calibrated mix of transfer payments can be very effective at mitigating the macroeconomic impacts of the energy price shock. However, such policy interventions are never able to fully countervail the shift toward profits of the income distribution. Additional measures targeting prices to ensure the complete pass-through of energy price decreases once the shock recedes provide a solution to this issue.

We estimate how energy shocks affect the functional distribution of income. Using structural vector autoregressions identified with an external instrument, we find that an increase in oil prices leads to a substantial and long-lasting decline in the wage share. Real aggregate wage income is significantly impacted, with a considerable part of this decline stemming from distributive dynamics. We also investigate possible asymmetries in the response to oil supply shocks, finding that the wage share is more sensitive to negative shocks than to positive ones. This suggests that wage earners lose from oil price hikes more than they benefit from declines. 

We present an updated, stock-flow consistent version of the 'Dystopian Schumpeter meeting Keynes' agent-based integrated assessment model. By embedding the model in a fully specified accounting system, all balance sheet items and financial flows can be explicitly and consistently tracked throughout a simulation. This allows for an improved analysis of climate change and climate policy scenarios in terms of their systemic implications for agent and sector-level balance sheet dynamics and financial stability. We provide an extensive description of the updated model, representing the most detailed outline of a model from the well-established 'Keynes + Schumpeter' family available to date. Following a discussion of calibration and validation, we present a range of example scenarios. 

In this paper we examine the role of the design of behavioral rules in agent-based macroeconomic modeling. Based on clear theoretical foundations, we develop a general representation of the behavioral rules governing price and quantity decisions of firms and show how rules used in four main families of agent-based macroeconomic models can be interpreted as special cases of these general rules. We embed the four variations of these rules into a calibrated agent-based macroeconomic framework and show that they all yield qualitatively very similar dynamics in business-as-usual times. However, the impact of demand, cost, and productivity shocks differ substantially depending on which of the four variants of the price and quantity rules are used.

The paper introduces an integrated approach, blending Opinion Dynamics with a Macroeconomic Agent-Based Model (OD-MABM). It aims to explore the co-evolution of climate change mitigation policy and public support. The OD-MABM links a novel opinion dynamics model that is calibrated for European countries using panel survey data to the Dystopian Schumpeter meeting Keynes model (DSK). Opinion dynamics regarding stringent climate policy arise from complex interactions among social, political, economic and climate systems where a household’s opinion is affected by individual economic conditions, perception of climate change, industry-led (mis-)information and social influence. We examine 133 policy pathways in the EU, integrating various carbon tax schemes and revenue recycling mechanisms. Our findings reveal that while effective carbon tax policies initially lead to a decline in public support due to substantial macroeconomic transition costs, they concurrently drive a positive social tipping point in the future. This shift stems from the evolving economic and political influence associated with the fossil fuel-based industry, gradually diminishing as the transition unfolds. Second, hybrid revenue recycling strategies that combine green subsidies with climate dividends successfully address this intertemporal trade-off, broadening public support right from the introduction of the carbon tax.

We study how income inequality affects monetary policy through the inequality-household debt channel. We design a minimal macro Agent-Based model that replicates several stylized facts, including two novel ones: falling aggregate saving rate and decreasing bankruptcies during the household's debt boom phase. When inequality meets financial liberalization, a leaning against-the-wind strategy can preserve financial stability at the cost of high unemployment, whereas an accommodative strategy, i.e. lowering the policy rate, can dampen the fall of aggregate demand at the cost of larger leverage. We conclude that inequality may constrain the central bank, even when it is not explicitly targeted. 

The increasing automation of tasks traditionally performed by labour is reshaping the relationship between skills and tasks of workers, unevenly affecting labour demand for low, middle, and high-skill occupations. To investigate the economy-wide response to automation, we designed a multisector Agent-Based Macroeconomic model accounting for workers’ heterogeneity in skills and tasks. The model features endogenous skill-biased technical change, and heterogeneous consumption preferences for goods and personal services across workers of different skill types. Following available empirical evidence, we model automation as a manufacturing-specific, productivity-enhancing, and skill-biased technological process. We show how automation can trigger a structural change process from manufactory to personal services, which eventually increases the share of high and low-skilled occupations, while reducing the share of middle-skilled ones. Following the literature, we label this dynamics as job polarisation throughout the paper. Finally, we study how labour market policies can feedback in the model dynamics. In our framework, a minimum wage policy (i) slows down the structural change process, (ii) boosts aggregate productivity, and (iii) accelerates the automation process, strengthening productivity growth within the manufacturing sector.