MAPS Chile

Macroeconomic Modelling Results: MEMO II Model

November 5th, 2014EconLab III, Cape Town

2

Framework

Macroeconomic Modelling: Objectives

Macroeconomic model (DSGE) to asses the impact of 9 mitigation scenarios built by Institute for Structural Research (IBS, Poland):

• Aggregate emissions

• Macroeconomic indicators:

‐ GDP growth rate‐ Sectorial GDP‐ Employment and unemployment‐ Consumption‐ Investment‐ Fiscal revenue and expenditure‐ Current account‐ Exchange rate‐ Wages

Macroeconomic Modelling:Framework

Sectoral Baseline- CO2 emissions- Economic activity level- Electricity generation data - Forestry expansion plan

DSGE Multisectoral Model

DSGE Multisectoral Model

Baseline MAPS 2013GDP, Population, Labor Market, Exchange

Rate, Fuel Prices

Sectoral Models

 

Sectoral Models

 Macoreconomic

indicators

CO2 emissions

Model

Input/output for the model

 

 

Mitigation Scenarios- CO2 emissions- Expansion plan electricity sector- CAPEX-i, OPEX-i

1

2

3DSGE calibration:

- I/O Matrix 2003 OECD- National Accounts1986 -2012- National Employment Survey- National Energy Balance- Fiscal Statistics DIPRES

Links: Sectoral Models and DSGE Model

Electricity generation

Mining and Industry

Transport

Agriculture

Forestry

CPR

Waste

Raw materials

Public services

Construction

Transport

Agriculture and Forestry

Trade

Financial Services

Industry

Services

Electricity generation

Households

Sectoral Models DSGE Model

Coal

Oil

Gas

Copper

Coal

Crude petroleum

Diesel

Gasoline

Other oil derivate

Natural gas

LPG and kerosene

Copper

Sectoral Models DSGE Model

6

Macroeconomic model: DSGE MEMO II

Characteristics of MEMO II Model

• Dynamic Stochastic General Equilibrium model (DSGE)

• Small open economy

• 10 productive sectors y 4 type of raw materials

• More than 4000 variables

• Calibrated with data for the Chilean economy

Structure of the Model: General Equilibrium

9

Mitigation Actions

How the mitigation scenarios are simulated in the model

96 mitigation actions with different level of intensity are used to built mitigation scenarios.

9 Mitigation Scenarios: Carbon tax, base, medium and high effort, Renewable Energies, NCRE, Energy Efficiency, 80/20.

Cost (savings) for each scenario• CAPEX (capital expenditure)• OPEX (operational expenditure)

Identification of the affected sectors• CAPEX: imported machinery, construction sector, etc.• OPEX: savings in energy consumption, maintenance spending, etc.

These cost (savings) must be translated to shock into the model.

11

Model:

Kalman filter

Information (w) Selection of shocks ()

Estimated shocks

)

Simulation results (deviations from baseline, %)

Problems

Simulation Strategy

Data (w)Shocks

selection ()

DSGE Model ResultsMitigation Scenarios

DSGE Model ResultsCarbon Tax Scenarios

Modelling Carbon Tax

Five different carbon tax level are simulated: US$5, US$10, US$20, US$40 and US$50

US$5/ton simulated by MAPS Chile is different than the carbon tax included in the tax reform recently approved in Chile.

Assumptions MAPS Chile simulation:• Carbon tax is imposed to all sources of emissions in the economy.• Recycling Fiscal Revenue: Lump sum transfer to household

Carbon Tax Scenario: Aggregates results

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

-1.0%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

5 US$ 20 US$

Gross Domestic Product(deviation from baseline, %)

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

-1.8%-1.6%-1.4%-1.2%-1.0%-0.8%-0.6%-0.4%-0.2%0.0%

5 US$ 20 US$

Employment(deviation from baseline, %)

-16.0%-14.0%-12.0%-10.0%

-8.0%-6.0%-4.0%-2.0%0.0%

5 US$ 20 US$

CO2 emissions (deviation from baseline, %)

Change in CO2 emissions(millions of tons)

2020 20305 US$ -3,61 -5,1720 US$ -14,42 -20,69

Change in CO2 emissions: 20 US$ tax(million of tons)

Model Electric sector DSGE2020 -4,07 -14,422030 -13,55 -20,69

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

CO2 emissions Sectoral GDP

Industry sector(deviation from baseline, %)

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

CO2 emissions Sectoral GDP

Raw material sector(deviation from baseline, %)

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

-3.5%-3.0%-2.5%-2.0%-1.5%-1.0%-0.5%0.0%0.5%1.0%1.5%

CO2 emissions Sectoral GDP

Transport sector(deviation from baseline, %)

Carbon Tax Scenario 20 US$: Sectoral results

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

-30%

-20%

-10%

0%

10%

20%

30%

NCRE Hydro Gas Coal

Electricity generation by technology type(deviation from baseline, %)

Effects on Employment Effects on Employment and Unemployment rate

(1) It Includes agriculture, hunting, forestry and fishing.(2) It Includes construction and real states.(3) It Includes electricity, gas and water.(4) It Includes services of finance intermediation.(5) It Includes manufacturing industry.(6) It Includes public administration, defense, social security, education, others. (7) It Includes domestic services and other services.(8) It transport, storage and telecommunication.(9) It Includes retail sales.(10) It Includes mining.

(1) There is no direct relationship between unemployment and employment because the labor force is endogenous in the DSGE model.

Carbon Tax Scenario 20 US$: Employment

SectorSector share in

total employment

(year 2012, %)

Deviation from baseline

year 2020 (%)

Deviation from baseline

year 2030 (%)

Agriculture (1) 10,0% -1,8% -1,8%Construction (2) 14,6% -2,0% -0,9%

Electricity (3) 0,7% -1,5% -2,1%Financial services (4) 1,8% -1,9% -1,9%

Industry (5) 11,6% -2,5% -2,4%Public services (6) 20,8% -0,8% -1,5%Other services (7) 10,3% -1,3% -1,4%

Transport (8) 7,3% -1,9% -1,8%Trade (9) 19,7% -1,6% -1,5%

Raw material (10) 3,3% -3,0% -2,9%Total 100,0% -1,6% -1,6%

YearNatural

unemployment rate (%)

Unemployment rate1 (%)

Change in employment

(number)

2020 8,0% 8,3% -140.182

2030 8,0% 8,2% -152.469

DSGE Model ResultsBase Scenario

Base Scenario: Aggregates results

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

PIB Empleo

Gross Domestic Product and Employment(deviation from baseline, %)

-16.0%-14.0%-12.0%-10.0%

-8.0%-6.0%-4.0%-2.0%0.0%

Emisiones CO2 DSGE Emisiones CO2 Sectorial

CO2 emissions (deviation from baseline, %)

-3,000,000-2,500,000-2,000,000-1,500,000-1,000,000

-500,0000

500,0001,000,0001,500,000

Opex Capex

CAPEX, OPEX: Aggregate economy(million of pesos 2013)

CAPEX y OPEX (% Baseline GDP)

2013 2020 2030OPEX -0,1% -0,5% -1,2%CAPEX 0,3% 0,2% 0,4%

Change in CO2 emissions(million of tons)

2020 2030Sectoral model -11,1 -19,2DSGE model -9,54 -14,14Difference 1,58 5,06

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

CO2 emissions DSGE CO2 emissions sectoral model GDP

GDP and CO2 emissions: Industry sector (deviation from baseline, %)

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

CO2 emissions DSGE CO2 emissions sectoral model GDP

GDP and CO2 emissions: Raw materials sector (deviation from baseline, %)

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

CO2 emissions DSGE CO2 emissions Sectoral model GDP

GDP and CO2 emissions: Transport sector (deviation from baseline, %)

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

CO2 emissions DSGE CO2 emissions sectoral

CO2 emissions: Residential sector (deviation from baseline, %)

Base Scenario: Sectoral results

Effects on Employment Effects on Employment and Unemployment rate

(1) It Includes agriculture, hunting, forestry and fishing.(2) It Includes construction and real states.(3) It Includes electricity, gas and water.(4) It Includes services of finance intermediation.(5) It Includes manufacturing industry.(6) It Includes public administration, defense, social security, education, others. (7) It Includes domestic services and other services.(8) It transport, storage and telecommunication.(9) It Includes retail sales.(10) It Includes mining.

(1) There is no direct relationship between unemployment and employment because the labor force is endogenous in the DSGE model.

Base Scenario: Employment

SectorSector share in

total employment

(year 2012, %)

Deviation from baseline

year 2020 (%)

Deviation from baseline

year 2030 (%)

Agriculture (1) 10.0% -0.8% 2.4%Construction (2) 14.6% 3.2% 4.5%

Electricity (3) 0.7% -9.8% -18.9%Financial services (4) 1.8% -0.3% 3.6%

Industry (5) 11.6% 0.6% 3.7%Public services (6) 20.8% -0.8% 4.6%Other services (7) 10.3% -0.4% 2.7%

Transport (8) 7.3% -0.5% 2.9%Trade (9) 19.7% -0.1% 3.5%

Raw material (10) 3.3% -0.3% 3.3%Total 100.0% -0.1% 3.5%

YearNatural

unemployment rate (%)

Unemployment rate1 (%)

Change in employment

(number)

2020 8.0% 7.9% -9,975

2030 8.0% 7.2% 320,925

DSGE Model ResultsHigh Effort Scenario

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%

GDP Employment

Gross Domestic Product and Employment(deviation from baseline, %)

-36.0%-32.0%-28.0%-24.0%-20.0%-16.0%-12.0%

-8.0%-4.0%0.0%

CO2 emissions DSGE Co2 emissions sectoral model

CO2 emissions (deviation from baseline, %)

-6,000,000

-4,000,000

-2,000,000

0

2,000,000

4,000,000

6,000,000

Opex Capex

CAPEX, OPEX: Aggregate economy(million of pesos 2013)

CAPEX y OPEX (% Baseline GDP)

2013 2020 2030OPEX -0,1% -0,6% -2,1%CAPEX 0,8% 2,1% 1,2%

Change in CO2 emissions(million of tons)

2020 2030Sectoral model -16,9 -51,0DSGE model -14,12 -39,90Difference 2,76 11,06

High Effort Scenario: Aggregates results

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

CO2 emissions DSGE CO2 emissions sectoral model GDP

GDP and CO2 emissions: Industry sector (deviation from baseline, %)

-12.0%-10.0%

-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%

CO2 emissions DSGE CO2 emissions sectoral model GDP

GDP and CO2 emissions: Raw materials sector (deviation from baseline, %)

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

Emisiones CO2 DSGE CO2 emissions sectoral model GDP

GDP and CO2 emissions: Transport sector (deviation from baseline, %)

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

CO2 emissions DSGE CO2 emissions sectoral model

CO2 emissions: Residential sector (deviation from baseline, %)

High Effort Scenario: Sectoral results

Effects on Employment Effects on Employment and Unemployment rate

(1) It Includes agriculture, hunting, forestry and fishing.(2) It Includes construction and real states.(3) It Includes electricity, gas and water.(4) It Includes services of finance intermediation.(5) It Includes manufacturing industry.(6) It Includes public administration, defense, social security, education, others. (7) It Includes domestic services and other services.(8) It transport, storage and telecommunication.(9) It Includes retail sales.(10) It Includes mining.

(1) There is no direct relationship between unemployment and employment because the labor force is endogenous in the DSGE model.

High Effort Scenario: Employment

SectorSector share in

total employment

(year 2012, %)

Deviation from baseline

year 2020 (%)

Deviation from baseline

year 2030 (%)

Agriculture (1) 10.0% 0.0% 5.2%Construction (2) 14.6% 2.4% 8.3%

Electricity (3) 0.7% -26.0% -3.2%Financial services (4) 1.8% 0.1% 7.1%

Industry (5) 11.6% 1.2% 8.2%Public services (6) 20.8% -0.7% 7.6%Other services (7) 10.3% 0.3% 5.2%

Transport (8) 7.3% -0.2% 2.9%Trade (9) 19.7% 0.2% 6.6%

Raw material (10) 3.3% -1.4% 2.3%Total 100.0% -0.2% 6.3%

YearNatural

unemployment rate (%)

Unemployment rate1 (%)

Change in employment

(number)

2020 8,0% 7,8% -13.177

2030 8,0% 6,2% 588.445

DSGE Model ResultsAll Scenarios

All Scenarios: Aggregates results

Scenario GDP Employment CO2 emissions

2020 2030 2020 2030 2020 2030

Carbon tax (5 US$)* -0,2% -0,2% -0,4% -0,4% -3,1% -3,4%Carbon tax (20 US$)* -0,9% -0,8% -1,5% -1,6% -12,3% -13,5%Base effort 0,1% 4,1% -0,1% 3,5% -8,2% -9,3%Middle effort -0,3% 6,7% -0,7% 5,5% -10,9% -23,4%High effort -0,1% 7,4% -0,2% 6,3% -12,2% -26,2%Energy efficiency -0,6% 3,3% -0,8% 2,6% -4,2% -6,2%NCRE 0,0% 0,6% 0,3% -0,2% -3,8% -9,1%Renewables energies -0,1% 0,7% 0,3% -0,2% -4,1% -15,2%80/20 0,2% 1,2% -0,3% 0,0% -9,9% -18,8%

Macroeconomic Modelling Results: MEMO II Model

November 5th, 2014EconLab III, Cape Town