Macroeconomic Consistency issues in E3 Modeling: The Continued Fable of the Elephant and the Rabbit

Frederic Ghersi and Jean-Charles Hourcade
Authors registered in the RePEc Author Service: Jean-Charles Hourcade and Frédéric Ghersi

The Energy Journal, 2006, vol. Hybrid Modeling, issue Special Issue #2, 39-62

Abstract: Starting from a short presentation of the limits of using conventional production functions to hybridize energy-economy relationships, this paper presents a methodology aiming at a better integration of bottom-up policy scenarios in a top-down static general equilibrium framework. Along the lines of AhmadÕs innovation possibility curve, the methodology consists in implementing top-down envelopes of production and demand functions, whose variable point elasticities of substitution provide a flexible interface for calibration on any bottom-up expertise. Numerical experiments assessing the impact of a rising carbon tax on the global 2030 economy compare the application of this methodology to that of two standard CES-based approaches. Results confirm that, in case of large departures from reference scenarios or of strong convexities in bottom-up results, the use of conventional CES production and utility functions may lead to a significant bias in cost assessment.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (40)

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