Environmental macroeconomics: from the IS–LM–EE model to a social welfare approach
by Carlos A. Lopez Morales
International Journal of Environment, Workplace and Employment (IJEWE), Vol. 3, No. 3/4, 2007

Abstract: In answer to Daly's original call for an environmental macroeconomics, Heyes incorporated an environmental constraint in the form of an EE or ''ecological equilibrium'' curve into a simple ''Investment/Savings (IS)-Liquidity/Money (LM)'' model (Heyes, 2000). Some criticisms and extensions to the Heyes proposal were presented by Lawn to reflect open economy issues and the implications of technological progress (Lawn, 2003, 2007). Recently, Sim (2006) conducted a discussion on the adjustment processes of the IS–LM–EE system. In this paper, a simple framework extending the IS–LM–EE model is presented to address the perceived problem of having to balance the twin macro goals of economic growth and environmental sustainability. This paper shows that unless environmental policy is optimal, the policy maker's decision will lead to unsustainable growth. If, on the contrary, environmental policy is optimal, there is: (a) initially, a finite period of sustainable growth and (b) due to thermodynamic constraints, a gradual adjustment to a stationary sustainable output level. Social preferences, however, play a crucial role in terms of characterising the long-run adjustment process. The aim of this paper is to contribute further to Heyes' original proposal – the greening of text book macro theory – and is motivated by Daly's suggestion that macroeconomic theory should promote the basic goals of human development and sustainability.

Online publication date: Sun, 06-Jul-2008

The full text of this article is only available to individual subscribers or to users at subscribing institutions.

 
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.

Pay per view:
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.

Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Environment, Workplace and Employment (IJEWE):
Login with your Inderscience username and password:

Username:        Password:          Forgotten your password?

Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.

If you still need assistance, please email subs@inderscience.com