On Heyes' IS EE proposal to establish an environmental macroeconomics

Philip A. Lawn

Environment and Development Economics, 2003, vol. 8, issue 01, pages 31-56

Abstract: A decade has now passed since Daly made a plea for an environmental macroeconomics. Despite an expanding literature on green national accounting and the efforts of ecological economists to measure the sustainable net benefits of a growing macroeconomy, it is only recently that Daly s plea has been adequately answered. This has been achieved with the incorporation by Heyes of an environmental equilibrium or EE curve into the familiar IS LM model. However, the IS LM EE model proposed by Heyes is incomplete. By extending Heyes model to include the role of technological progress and the sustainable net benefits of economic activity, this paper shows that conclusions regarding the desirability of expansionary fiscal and monetary policies alter quite radically. Moreover, it sends out a clear message that environmental concerns should be incorporated into macroeconomic models. They should not be solely confined to microeconomics.

Date: 2003

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