A macroeconomic multi-regional IAM with input-output linkages: physical boundaries, climate change feedbacks and energy poverty
The WILIAM economic module considers biophysical constraints and interlinkages between monetary and physical flows, embedding the economic system into the ecological system. Its core is a dynamic econometric multi-regional input-output model that accounts for several feedbacks between the economy and nature. Labor, energy, capital and other inputs in each industry depend on input prices, technical progress and policies. Output prices are the mechanism used to deal with natural resource scarcity. Climate change damages affect industries and households. It also takes into account household heterogeneity, assuming different consumers’ reactions to price and income shocks and capturing the distributional effects of policies. Household income generation is linked to production and the labour market is represented by household labour supply functions and wage-setting equations. For policy purposes, the public sector and its relationship with all other agents are modelled in detail. Finally, the model also integrates financial feedback into production, consumption and investment.