In this study, we explore the macroeconomic effects of green subsidies that governments apply to support the ecological transition in their economies. This includes subsidies provided to consumers, green firms, and private banks that lend to green firms. In our experiments, we assume that these subsidies are financed through a carbon tax. Calibrated to France, we find that providing subsidies to support the labor cost of green firms is the most effective tool to reduce pollution and support the growth of the green sector. This policy is more effective than a carbon tax alone, and especially for stimulating a positive supply–demand cycle in the green sector.
In terms of pollution reduction, capital injection into green firms, green vouchers for consumers, and subsidies to private banks’ lending to green firms are less effective than carbon tax alone. If labor becomes more substitutable between green and brown sectors, the effects of green subsidies are attenuated. If capital becomes more substitutable between green and brown sectors, then the effects of green subsidies are amplified.
We establish a two-sector model to simulate the potential effects of green fiscal poli- cies and unconventional green monetary policy on the economy during a recovery or in case of a stimulus policy. We find that instruments such as a carbon tax, an implicit tax on brown loans, and a subsidy for the purchase of green goods are all beneficial to the green sector, in contrast to green quantitative easing. A carbon tax imposed directly on firms in the brown sector is the most effective tool to reduce pollution. More importantly, the marginal effects of green instruments on the economy depend on consumer preferences. Namely, the marginal effects are the most prominent when consumers start to purchase more green goods as an increasing part of their consumption basket. Furthermore, the effects of those green policies are more effective when the elasticity of substitution between green and brown goods increases. This finding suggests that raising consumers’ awareness and ability to consume green goods reinforce the effectiveness of public policies designed for low-carbon transition of the economy.
To investigate the dynamic effect of external shocks on an oil exporting economy, we estimate, using Bayesian approach, a DSGE model based on the features of the Algerian economy. We analyze the impulse response functions of our external shocks according to alternative monetary rules. The welfare cost associated with each monetary policy rule is considered. We find that, over the period 1990–2010, core inflation monetary rule allows better to stabilize both output and inflation. This rule also appears to be the best way to improve a social welfare.
To investigate the main impacts of the recent increase of oil price on oil exporting economies, we estimate a DSGE model for a sample of 16 oil exporting countries (Algeria, Argentina, Ecuador, Gabon, Indonesia, Kuwait, Libya, Malaysia, Mexico, Nigeria, Oman, Russia, Saudi Arabia, United Arab Emirates, and Venezuela) over the period from 1980 to 2010, except for Russia where our sample begins in 1992. In order to distinguish between high-dependent and low-dependent countries, we use two indicators: the ratio of fuel exports to total merchandise export and the ratio of oil exports to GDP. We verify if the first group is more sensitive to the Dutch disease effect. We also assess the role of monetary policy. Our main findings are twofold. First, our results confirm the fact that the Dutch disease occurs mainly in high oil dependent countries. Second, the appropriate monetary policy rule -exchange rate rule versus inflation targeting one-to prevent the Dutch disease differs according to the countries. In other words, the best monetary rule is specific to each country.
In this paper, we build a Multi-sector Dynamic Stochastic General Equilibrium (DSGE) model to investigate the impact of both windfall (an increase in oil price) and boom (an increase in oil resource) on an oil exporting economy. Our model is built to see if the two oil shocks (windfall and boom) generate, in the same proportion, a Dutch disease effect. Our main findings show that the Dutch disease effect under its two main mechanisms, namely spending effect and resource-movement effect, occurs only in the case of flexible wages and sticky prices, when exchange rate is fixed. We also compare the source of fluctuations that leads to a strong effect in term of de-industrialization. We conclude that the windfall leads to a stronger effect than a boom. Finally, the choice of flexible exchange rate regime helps to improve welfare.
Working papers
Climate policy and gender inequality, with Xiaofei Ma and J.Gustafsson, J. Maih (2025).
Empirical evidence suggests that women, on average, have stronger preferences for green consumption, and are employed in less carbon-intensive sectors, when compared with men. The present paper exploits this heterogeneity to study the distributive effects of climate policy between men and women. The analyses rely on numerical experiments within an environmental dynamic stochastic general equilibrium (E-DSGE) model in which men and women differ in their preferences over carbon-intense goods, and in their comparative advantage across sectors. Calibrating the model to the French economy, we find that climate policies, such as a carbon tax, or a subsidy for the labor cost of green firms, can reduce gender-indexed income inequality. Productivity improvements in the green sector can also reduce this inequality.
Oil exporting countries and economic diversification: the role of monetary and fiscal policies. With Xiaofei. Ma and Tovonony Razafindrabe, (2023).
In this study, we examined the role of monetary and fiscal policies in the diversification of oil-dependent economies. Indeed, the change in external condition due to recent pandemic event and international political frictions have profoundly impacted oil-exporting countries. On the demand side, they have endured an abrupt fall in world oil consumption due to lockdowns during pandemic crisis and are facing a potential decline of world oil demand as a result of a shift toward green production to reduce pollution to the planet. On the supply side, they are facing negative supply shocks on imported goods due to the disruption of the global value chain and the resulting stagnation of global supply chain. To provide some policy responses to the need for diversification of oil-exporting economies, we built a DSGE model including two production sectors and a banking system. We simulated different scenarios aiming at orienting monetary and fiscal policies towards supporting production in the non-oil sector. Our main results show that monetary policy loses its efficiency facing negative oil price shocks. The effects of oil exports on bank’s liquidity and credit in the market are much greater than Central Bank’s adjustment on the standard interest rate. However, by supporting the non-oil sector, fiscal policy is efficient to reduce the contraction risk for oil-exporting economies.
We develop a small open economy model by using a multi-sectoral medium-scale dynamic stochastic general equilibrium (DSGE) model for an oil-exporting economy. Specifically, we apply a business cycle frequency perspective to study the effectiveness of the stabilization properties of monetary and fiscal policy. In this vein, the central bank adopts alternative monetary policy regimes by following a Taylor rule with a different target. Fiscal policy in turn is introduced through an oil stabilization fund used to finance public spending that helps improve productivity in the economy. Nonetheless, it can suffer from low efficiency because of economic and political distortions. We find that the fixed exchange rate rule combined with efficient public spending exhibits the best stabilization properties in the aftermath of a positive oil price shock.
This paper contributes to the literature on the Dutch disease effet in a small open oil exporting economy. Specifically, our contribution to the literature is twofold. On the one hand, we formulate a DSGE model in line with the balanced-growth path theory. On the other hand, besides alternative monetary rules, the model introduces an oil stabilization fund, an oil price rule, and a fiscal rule. Our aim is to analyze to what extent the combinations between our alternative monetary rules and fiscal policy are effective to prevent a Dutch disease effect in the aftermath of a positive oil price shock. Our main findings show that the Dutch disease, through the spending effect, occurs only in the case of ináation targeting regime. An expansionary fiscal policy contributes to improve the state of the economy through its impact on the productivity of the manufacturing sector.
Work in progress
Leveraging Monetary Policy for Climate Mitigation: A South African Perspective. With J. Maih.
The Long-Term and Short-Term Effects of Green Policies in a Two-Country Model. With Xiaofei Ma.
The Conduct of Monetary Policy in an Excess Liquidity Environment. With Tovonony Razafindrabe.
Climate Policy in an Environmental HANK model. With Tovonony Razafindrabe.