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Edited by Jeroen C.J.M. van den Bergh
Chapter 41: Environment in Macroeconomic Modelling
Ekko C van Ierland 1. Introduction Macroeconomic theory traditionally focuses on the development of national income and its constituent expenditure categories. Targets of macroeconomic policy include economic growth, full employment, balance of payments equilibrium and a stable price level. The main emphasis is on wage and price formation, its implications for the labour market, stability in the monetary sphere and adjustment of disequilibria in the markets. For many years macroeconomic textbooks have neglected environmental issues, including the use of natural resources, emissions of pollutants and their environmental impacts (Daly, 199I). Today, macroeconomic theory gives more attention to the basic interactions between the economic process and the environment. Both theoretical and applied macroeconomic studies analyse how macroeconomic development results in exploitation of natural resources and affects the environment. In the same way economists analyse how environmental and energy policies influence macroeconomic performance, This reminds us of the famous ‘Tableau Econornique’ (Quesnay, 1758), which was developed to describe how economic activity is the result of interactions between nature and agricultural production, which was considered to be the basis of economic prosperity. Following the publication of the Report to the Club of Rome, Limits to Growth (Meadows et al., 1972), new developments in macroeconomic theory and modelling have taken place. New models have been developed to analyse the macroeconomic impacts of environmental policy measures, to study the characteristics of sustainable development in macroeconomic growth models and to analyse the economic aspects of global warming in integrated dynamic climate and economy models (Nordhaus, 1991;...
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