FMM Working Paper

: A benchmark Ecological Stock-Flow-Consistent Input-Output model for Denmark

This paper aims to develop an ecological macroeconomic model for the Danish economy that can link the economic and financial system with some key aspects of the climate. To do so, we combine Stock-flow-Consistent approach (SFC) with Input-Output tables (IO) to build a hybrid model, which we call Ecological Stock-Flow-Consistent Input-Output model (E-SFC-IO). Most parameters of the model are estimated using time series data from 1995 to 2019, after which, we carry out simulations. We find that the model (with some minor adjustments) can replicate the dynamics of our key variables pertaining to the economy, financial system, and climate. To further validate the model, we analyse the response of the economy to various shocks, finding that it can capture the stylised facts. The model offers a foundation for providing a reasonable assessment of the climate policies to the relevant stakeholders.

Keywords: Empirical Stock Flow consistent models, Input-Output modelling, Ecological macroeconomics, Denmark