Talk by Asjad Naqvi

The urgent need to meet climate targets is being exacerbated by an increasing frequency of climate shocks that place significant financial stress on private and public savings that are already limited by budgets constraints and fiscal rules. This situation is compounded by high economic variability both domestically and internationally, particularly in highly financialized economies, where real-financial interactions critically influence macroeconomic outcomes. Consequently, the formulation of effective climate policies is crucial to mitigate the escalating costs associated with transition risks. Despite considerable advancements, current modeling frameworks such as Computable General Equilibrium (CGE), Integrated Assessment Models (IAMs), and Dynamic Stochastic General Equilibrium (DSGE) models, primarily focus on supply-side dynamics and long-run solutions with little insights on the role of path-dependencies and the complexities of structural change driven by meso-level institutional interactions. Agent-based models (ABMs), while offering a highly flexible framework, tend to focus on micro foundations, and require extensive data and parameter inputs. This presentation proposes that Stock-Flow Consistent (SFC) models, that are demand-driven mid-complexity frameworks, can integrate real and financial macro dynamics with Input-Output (IO) models to better analyze the non-linear and distributional impacts of climate transition pathways. The presentation will also highlight some of the on-going SFC-IO work and their applications.