Chong, Chin Yuan; Mazie , Jacques; Reyes, Luis
A icle
Mac oeconomic policy e alua ion in an SFC econome ic
model: he case o he in es men p og amme o clima e
ac ion in F ance
Eu opean Jou nal o Economics and Economic Policies: In e en ion (EJEEP)
P o ided in Coope a ion wi h:
Edwa d Elga Publishing
Sugges ed Ci a ion: Chong, Chin Yuan; Mazie , Jacques; Reyes, Luis (2025) : Mac oeconomic policy
e alua ion in an SFC econome ic model: he case o he in es men p og amme o clima e
ac ion in F ance, Eu opean Jou nal o Economics and Economic Policies: In e en ion (EJEEP), ISSN
2052-7772, Edwa d Elga Publishing, Chel enham, Vol. 22, Iss. 3, pp. 370-391,
h ps://doi.o g/10.4337/ejeep.2024.0144
This Ve sion is a ailable a :
h ps://hdl.handle.ne /10419/333444
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Eu opean Jou nal o Economics and Economic Policies: In e en ion, Vol. 22 No. 3, 2025, pp. 370–391
Fi s published online: Sep embe 2024; doi: 10.4337/ejeep.2024.0144
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© 2025 The Au ho
Resea ch A icle
Recei ed 30 Ma ch 2024, accep ed 5 June 2024
This is an open access wo k
G ow h models, g ow h s a egies, and powe
blocs in Tu key and Egyp in he wen y- i s
cen u y
Ali Rıza Güngen
Social Sciences, Columbia College, Canada
Ümi Akçay
Ins i u e o In e na ional Poli ical Economy, Be lin School o Economics and Law, Be lin, Ge many
Uemi .Akcay@hw -be lin.de
Analysis o he g ow h pa e ns in he Global Sou h in he wen y- i s cen u y sugges s he e is oom
o au ho i a ian s a es o sea ch o new g ow h models. Au ho i a ian s a es, such as Tu key and
Egyp , bene i ed om global inancial ci cums ances in he ea ly 2000s and expe ienced shi s in
g ow h s a egies in he 2010s, supp essing poli ical space u he . Ou main esea ch ques ion,
hus, is ocusing on wha he main domes ic poli ical economy causes o hese g ow h s a egy and
model changes a e. To explain he changes in g ow h s a egies and models amid he s eng h o ein-
o ced au ho i a ian egimes in hese wo coun ies, we employ a hyb id esea ch s a egy, ying
g ow h model changes o con lic s wi hin he powe bloc. We a gue ha in he mid- o-la e
2010s, pe iphe al goods p oduce s gained he uppe hand in Tu key, while a mili a y akeo e in
Egyp was ollowed by he p omo ion o expo s and new in es men s. We also con end ha powe
bloc econ igu a ions in he las decade and he ise o new g ow h s a egies bo h in Tu key and in
Egyp aimed o change p e ious domes ic demand-led demand and g ow h models.
Keywo ds: compa a i e poli ical economy, g ow h models, g ow h s a egies, Tu key, Egyp
JEL codes: B52, E65, E66, F43, O43, P52
1 INTRODUCTION
Au ho i a ian s a es in Tu key and Egyp eju ena ed hemsel es in he 2010s. This was a
de elopmen con a y o he widesp ead expec a ion ha when aced wi h deep economic
c ises and b ewing social discon en , au ho i a ian egimes a e less likely o main ain hei
powe . This s udy elabo a es on he g ow h models o Tu key and Egyp in he wen y-
i s cen u y. Despi e signi ican di e ences ega ding expo capaci y and mac oeconomic
indica o s, poli ical economic de elopmen s con e ge in a ious aspec s in hese wo coun-
ies. Mo eo e , he au ho i a ian egimes in bo h Tu key and Egyp main ained hei
powe while inc easingly supp essing he poli ical space in he 2010s (Tuğal 2016). We
desc ibe au ho i a ianism as a se o p ac ices ha isola es key policy-making p ocesses
om democ a ic o e sigh and excludes la ge g oups such as wo king classes, e hnic mino-
i ies o subal e n g oups om ins i u ional poli ics (Salgado 2022). F om a c i ical poli-
ical economy pe spec i e, au ho i a ian p ac ices canno be concei ed as clea ly cu om
Resea ch A icle
This isan open access wo k
Recei ed 8 Decembe 2022, accep ed 7 No embe 2023
Eu opean Jou nal o Economics and Economic Policies: In e en ion, Vol. 21 No. 1, 2024, pp. 151–171
Fi s published online: Ap il 2024; doi: 10.4337/ejeep.2024.01.09
Jou nal compila ion © 2024 Edwa d Elga Publishing L d
© 2024 The Au ho
Mac oeconomic policy e alua ion in an SFC
econome ic model: he case o he in es men
p og amme o clima e ac ion in F ance
Chin Yuan Chong
Kedge Business School and Chai e Finance d’Impac , F ance
Jacques Mazie
Uni e si é So bonne Pa is No d and Chai e Ene gie e P ospé i é, F ance
Luis Reyes*
Kedge Business School and Chai e Finance d’Impac , F ance and LASTA, Uni e si y o Rouen No mandy, F ance
We s udy he mac oeconomic impac o clima e ac ion policy ha would allow F ance o each i s
ne ze o objec i e by 2050. This policy, de ailed in a epo commissioned by he F ench P ime
Minis e , equi es signi ican addi ional in es men s o be made by i ms, households and he public
sec o . Con a y o he indings o he epo , ou simula ions show ha hese in es men s a e likely o
gene a e economic g ow h and educe public deb . Howe e , since g ow h inc eases impo demand,
he ade balance and o eign deb wo sen signi ican ly, showing ha he o eign sec o bene i s om
F ance unde aking clima e inance domes ically. Un o una ely, he cos o clima e ac ion is bo ne
mainly by i ms and households whose inancial posi ion wo sens conside ably. Ou ool o he anal-
ysis is a medium-scale empi ical s ock– low consis en model buil o he F ench economy (SFC FR).
Keywo ds: clima e ansi ion policy, clima e in es men s, empi ical SFC models
JEL codes: E12, E62
1 INTRODUCTION
SFC models in he lines o he ounding wo ks o Godley/La oie (2008) ha e p o ed
use ul o s udy he p ope ies o he inancial capi alism egime ha has se led since he
1980s (Reyes/Mazie 2014; Clé eno e al. 2010). Thanks o a comple e desc ip ion o
he balance shee s o he domes ic and o eign agen s, hey a e able o p o ide a comp e-
hensi e analysis o he main inancial imbalances cha ac e ising his g ow h egime, bo h
a he na ional and in e na ional le els. Un il 2010, he majo i y o models published in
academic jou nals we e heo e ical and calib a ed a he han es ima ed o using a mix
o bo h, e en i Godley and co-au ho s made empi ical con ibu ions well be o e hen
(mo e on his below). To be clea , non-empi ical models acili a e d awing clea -cu con-
clusions abou impo an issues such as inancial luc ua ions, US imbalances o eu o a ea
disequilib ia (Mazie 2020), o name a ew. A new gene a ion o SFC models appea ed
in he 2010s, inco po a ing clima e ansi ion and clima e policy issues building a he
* Co esponding au ho – Email: luis. ey[email p o ec ed].
Mac oeconomic policy e alua ion in an SFC econome ic model 371
Jou nal compila ion © 2025 Edwa d Elga Publishing L d© 2025 The Au ho
scale o he wo ld economy. They combined a adi ional SFC s uc u e wi h a block on
s ock– low ma e ial esou ces and/o damage unc ions. They showed he la ge nega i e
impac ha clima e change has on inancial s abili y and economic ac i i y (Da e mos
e al. 2017). They also illus a ed how a g een policy-mix could help educe inancial ins a-
bili y and global wa ming. Like adi ional SFC models, hey we e calib a ed, al hough in
a ealis ic way based on a ailable es ima es. Since he 2010s, publica ions using econome -
ically based SFC models ha e become mo e abundan han in he pas .
These models a e coun y-based, while many heo e ical SFC models we e simula ed
o he wo ld economy. This can be easily explained o he ex en ha he building o
econome ic na ional and in e na ional SFC models equi es conside able p elimina y
s a is ical wo k. F om his poin o iew, he CAM Model o he wo ld economy can be
ega ded as an excep ion (see, o ins ance, C ipps 2016). O he wo ks a e also unde way
o de elop ecological SFC models on a na ional basis wi h he aim o e alua ing bo h he
impac o clima e change and he e iciency o he deca bonisa ion policies implemen ed.
To ace global wa ming and espec he ca bon neu ali y objec i e by 2050, a complex
se o measu es, egula ions, axes, subsidies and in es men s ha e been implemen ed in
mos o he coun ies, wi h impo an na ional speci ici ies acco ding o he na u e o
he ins i u ions o each coun y and he o m o social comp omise accep ed. In all cases,
impo an in es men s, bo h p i a e and public, a e necessa y o c ea e new ca bon- ee
ene gy sou ces, o ins all mo e ene gy-e icien equipmen o o change he na u e o
consump ion. I also implies la ge ans e s be ween agen s wi h con ibu ions om he
p i a e and public sec o s. As low-income households a e p edominan ly a ec ed by he
ising cos o ene gy, edis ibu ion policies a e necessa y o make he ansi ion policy
mo e socially accep able. The ne e ec o all hese adjus men s is a om s aigh o wa d.
Ex an e e alua ions abou he cos o public inance o he bu den o households o i ms
a e no su icien o shed ligh on he low-ca bon s a egy o be ollowed. Mac oeconomic
modelling is a adi ional answe , and in his ega d, he SFC app oach is pa icula ly well-
sui ed o p o ide a cohe en e alua ion o he inancial balances o all he agen s.
This a icle i s in his pe spec i e. Thanks o a a he la ge mobilisa ion o he eco-
nomic adminis a ion, an assessmen o he main economic p oblems aised in F ance
wi h espec o clima e ac ion has led o he publica ion o an impo an epo o he
P ime Minis e (Pisani-Fe y/Mah ouz 2023; PFM hence o h). This de ailed documen ,
wi h 10 hema ic epo s, highligh s he impo ance o he indus ial e olu ion implied
by he clima e ansi ion and he speci ic ole played by he public sec o . The la ge in es -
men e o is es ima ed a a de ailed le el wi h he implica ion o he a ious ac o s con-
ce ned. The epo e alua es he mac oeconomic impac and he consequences o public
inance. Al hough i ecognises he high deg ee o unce ain y ha p e ails, he epo
emphasises he need o inc easing public deb combined wi h a empo a y ise in axes
on he weal hies . I also men ions he isk o in la iona y p essu es in he medium e m.
The me hodology used elies mainly on a de ailed bo om-up analysis and he use o a
a he disagg ega ed mac oeconomic model o e alua e de ailed policies such as assis ance
wi h he mal insula ion wo k o in es men in new elec ic powe s a ions. Howe e , he
mac oeconomic syn hesis o he impac o all he measu es is no ully achie ed. The
poin o iew adop ed in his a icle is simple. The s a ing poin is he in es men p o-
g amme o i ms, households and he go e nmen induced by clima e ac ion in F ance
by 2030–2040, gi en by he PFM epo , wi h he inancial con ibu ion o he public
sec o . These da a a e in oduced in he SFC FR model o e alua e he ex pos e ec s o
his a he la ge shock. The model does no desc ibe all he echnical ela ions in PFM bu
akes in o accoun all he in e dependencies a s ake in e ms o income dis ibu ion and
inancing o all domes ic and o eign agen s. A syn hesis o he impac o he in es men
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© 2025 The Au ho
p og amme is expec ed; impe ec bu including he necessa y eedback e ec s. Some
adjus men s a e made in SFC FR o inco po a e he speci ici ies o some shocks linked o
he clima e ansi ion.
The a icle is o ganised as ollows. The nex sec ion p o ides an o e iew o he exis ing
li e a u e in h ee pa s (coun y SFC models, models o F ance and clima e in es men ).
Sec ion 3 b ie ly desc ibes he SFC FR model. Sec ion 4 summa ises he main lines o
he in es men p og amme lis ed in he PMF epo and e alua es hei mac oeconomic
impac wi h he help o he model. A sensi i i y analysis is ca ied ou o ake accoun
o he unce ain y ega ding he p o i beha iou o non- inancial i ms and he ex en
o he public suppo policy. O e all, i seems ha mo e han a public deb p oblem, as
unde lined in he PFM epo , he inancing o clima e ac ion in F ance aises a p oblem
o wo sening he i ms’ and households’ inancial si ua ion while enhancing he issue o
o eign deb . Sec ion 5 concludes.
2 LITERATURE REVIEW
S ock– low modelling à la Godley–La oie is a powe ul ool o policy analysis, since i
allows he modelle /use o ha e a he /his disposal a cohe en accoun ing ep esen a ion o
an economy be ween he eal and inancial sec o s simul aneously in a dynamic way, explic-
i ly in eg a ing ho izon al, e ical, low- o-s ock and balance shee consis ency, as well as
s ock- o- low eedbacks (Zezza/Zezza 2019). Coun y models a e usually medium- o-la ge
scale, and gi en he amoun o p elimina y wo k hey equi e o be buil and o hem o
be ope a ional, he e is cu en ly no s anda d me hodology, al hough he p inciples ci ed
abo e cons i u e a compulso y basis. An impo an me hodological issue in his ype o
model is how he pa ame e s o beha iou al equa ions, inspi ed by Pos -Keynesian heo y,1
a e de ined. In ha espec , Passa ella (2019) p oposes a me hod o combine he es ima ed
and calib a ed pa ame e s, whe e he la e a e used o espec adding-up cons ain s.
The lis o cus omised coun y o empi ical SFC models published up- o-da e includes,
in no pa icula o de : A gen ina, he Ne he lands, Vie nam, he UK, Tunisia, he US, as
well as a leas wo e sions o Iceland, Denma k, I aly, F ance and G eece. No e ha his
lis does no a emp o be comp ehensi e, and ha , as men ioned abo e, no all adop he
same me hodology. While some a e ully empi ical ( o ou knowledge, I aly by Zezza and
Zezza, he la es e sion o Denma k, ou e sion o F ance and Vie nam), o he s combine
es ima ed and calib a ed pa ame e s, while o he s ely solely on he la e .
Valdecan os (2022) models he exchange a e in A gen ina o analyse he impac o
he global inancial cycle on ha economy. Meije s e al. (2015) a e in e es ed in how he
banking sec o inances eal es a e in he Ne he lands, while Muysken/Meije s (2022)
ocus on housing bubbles and pension und challenges in he Du ch economy. The PhD
hesis by Nguyen (2022) ocuses on he impac o clima e change in he Vie namese econ-
omy using a s ock– low model o ha economy. Following a me hodology simila o ha
desc ibed by Passa ella, Bu gess e al. (2016) build a model o he UK in o de o unde -
s and inancial balances in ha economy. Le He on/Ma ouane (2021) s udy he e ec s o
he pandemic in he Tunisian economy. Raza e al. (2019) model capi al in lows in Iceland
in o de o analyse impo ed business cycles, whe eas Malhe be (2022) ocuses on he
1 . Niki o os and Zezza (2017: 1211) a gue ha ‘ he SFC li e a u e has de eloped mos ly inside
he Keynesian school: i is he agg ega e demand ha se s he one o he economy…’
Mac oeconomic policy e alua ion in an SFC econome ic model 373
Jou nal compila ion © 2025 Edwa d Elga Publishing L d© 2025 The Au ho
mac o- undamen al ac o s ha explain he 2008 c isis in ha economy. By ialsen/Raza
(2018) s udy he e ec o an inc ease in he compensa ion a e o he unemployed on he
Danish economy, while Raza e al. (2023) make a quan i a i e assessmen o in la iona y
shocks in he same economy. Zezza/Zezza (2022), one o he wo SFC models o I aly
( he o he one being ha o Passa ella), is in e es ed in quan i a i e easing and uncon en-
ional mone a y policies in I aly, whe eas Mazie /Reyes (2023) ocus on he same ques ion
in F ance. Pie os (2021) is in e es ed in s udying he in e nal de alua ion mechanism in
he eal and inancial sec o s in G eece, pa ly inspi ed by i s p edecesso Papadimi iou
e al. (2013). Las , bu ce ainly no leas , pe haps he model ha s a ed he empi ical SFC
mo emen is ha o he US, de eloped by Godley and his co-wo ke s a he Le y Ins i u e.
Godley e al. (2007) b ie ly desc ibe he co e accoun ing p inciples o he model and ci e
many o he s a egic analyses ha comple e he model’s app oach, scope, s uc u e and
esul s, one o which da es back o 2000 (Godley 2000). An in e es ing p elimina y wo k
ha goes in he same sense is Godley/Zezza (1992) who buil a simpli ied s ock– low
model o Denma k. Some o he coun y models include Moldo a (Le He on/Yol 2019),
Mexico (Nalin/Yajima 2020) and Colombia (Escoba 2016).
Cu en ly, he e is also a ela i ely long lis o mac oeconomic models o he F ench
economy ha ha e been buil wi h speci ic objec i es and/o cha ac e is ics. MESANGE
(Modèle Economé ique de Simula ion e d’ANalyse Géné ale de l’Economie; Du e nez e al.
2017) is a qua e ly model de eloped by he F ench T easu y and he na ional s a is ics
bu eau INSEE, wi h abou 50 beha iou al equa ions bu no desc ip ion o he inan-
cial sec o . Opale (Daubai e e al. 2017), also a qua e ly model wi h a simple s uc u e
han and wi h esul s compa able o MESANGE, is used o one o wo yea s o ecas s
ha in eg a e elemen s ha lie ou side o he model. In bo h, beha iou al equa ions ake
he o m o e o co ec ion models, which in eg a e long- e m elemen s in sho - e m
speci ica ions.
Eu og een, a calib a ed model using F ench da a o 2014 ha places pa icula empha-
sis on inpu –ou pu ma ices, has been used o analysing al e na i es o g een g ow h
(D’Alessand o e al. 2020), o analyse he en i onmen al impac s o wo king ime educ-
ion (Cieplinski e al. 2021) as well as aw ma e ial sus ainabili y (Bou iab 2024).
Th eeME (Callonnec e al. 2016) is a la ge Neo-Keynesian Compu able Gene al
Equilib ium model ha de ails he in e dependency o 24 sec o s o ac i i y (wi h 12
in ene gy). In he sho e m, p oduc ion is de e mined by he demand side. In he long
e m, he model is supply side wi h p oduc ion depending on capi al, labou , ene gy,
ma e ials and ma gin, whe e each can be ei he domes ic o impo ed. The e is a la ge
inancial sec o wi h banks, loans, in e es a es ollowing he Taylo Rule and equi ies.
Howe e , he inancial block is no used in he cu en e sion. The objec i e o he model
is o e alua e mac oeconomic public policies, including changes in he economy ollowing
changes in he oil p ice, employe con ibu ions, alue added axes, public in es men and
he ca bon ax. In es men and ene gy a e decomposed by he ypes o goods and/o by
he sou ce o ene gy. In es men depends on i s pas alues, expec ed ou pu , subs i u-
ion phenomena (be ween capi al, labou and ene gy) and he di e ence be ween lagged
no ional capi al and obse ed lagged capi al.
The model o F ance o he Banque de F ance FR-BDF (Lemoine e al. 2019) is a
la ge-scale semi-s uc u al eplacemen o an olde model; Masco e (Baghli e al. 2004).
I d aws inspi a ion om he FRB/US model. FR-BDF has a la ge se o in e es a es, an
endogenous exchange a e and in eg a es expec a ions. I is, howe e , su p ising ha his is
done wi h nei he he inancial sec o no he balance shee s o agen s explici ly modelled.
An in e es ing wo k dealing speci ically wi h clima e in es men is ha o Hainau /
Coch an (2018), who desc ibe a me hodology (upda ed in Hainau e al. 2023) o calcula e
Eu opean Jou nal o Economics and Economic Policies: In e en ion, Vol. 22 No. 3374
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domes ic inancial lows in a ou o clima e in F ance, which is aken up by PFM o es i-
ma e he inancing needs shown in Table 2. Thei main pu pose is o suppo and encou -
age he deba e on he opic. On he basis o he F ench Na ional Low-Ca bon S a egy,
hey ake as he basis o hei me hodology he i ems included in g oss capi al o ma ion,
which a e included in he na ional accoun s and a e compa ible wi h bo h he use- esou ce
ables and he low-o - unds ha desc ibe weal h. Expendi u es ha ela e o ene gy e i-
ciency ( o ins ance, o educe ene gy use o hea ing, cooling, mo o isa ion o o e lec
he change in he main sou ce o ene gy) a e amongs he mos impo an ones conside ed.
The au ho s ack ini ial capi al needs by sec o o ac i i y, which a e di ided in o esiden-
ial, anspo , ag icul u e, indus y and cen alised ene gy p oduc ion/ne wo ks.
Finally, some cla i ica ion o wha we mean by clima e ac ion. Acco ding o EUR-
Lex, his e m e e s o ‘e o s aken o comba clima e change and i s impac s’. These
include mi iga ion and adap a ion. Mi iga ion ela es o he a oidance and educ ion o
g eenhouse gas emissions, whe eas adap a ion aims a s imula ing change o beha iou in
socie y while aking he una oidable as gi en. Clima e inance (as de ined by he Uni ed
Na ions F amewo k Con en ion on Clima e Change) e e s o local, na ional o ansna-
ional inancing ha seeks o suppo one o he o he o bo h in o de o add ess clima e
change.
3 THE OVERALL STRUCTURE OF THE SFC FR MODEL
The s uc u e o he model is analogous o ha o al eady exis ing na ional-le el SFC
models. The economy is di ided in o i e domes ic agen s: i ms, households, banks, he
cen al bank and he go e nmen , all o which in e ac wi h he es o he wo ld. The
mone a y and inancial ope a ions om he Eu opean Cen al Bank a e included wi h he
es o he wo ld in he s a is ical con en ions adop ed.
The model is agg ega ed wi h a single p oduc and is demand-led. P oduc ion (in
olume, a cons an p ices) is de e mined by domes ic demand (in es men and change
in in en o ies by i ms, consump ion and in es men om households, he go e nmen
and banks) and o eign demand (expo s ne o impo s). The consump ion p ice le el
depends on a ma k-up p icing ule and is a unc ion o uni labou cos s (ULC) and
impo p ices wi h an e ec om demand p essu es. Value added is calcula ed om GDP
a e deduc ion o he VAT and impo du ies and axes. Value added is spli among he
di e en agen s depending on simple s uc u al pa ame e s. I s dis ibu ion be ween
wages, p o i s, social con ibu ions, axes and o he edis ibu ion ope a ions a e desc ibed
in o de o a i e a he balance o he agen s’ accoun s, aking in o accoun hei expen-
di u es: disposable income, sa ings and inancing capaci y/need. Expo s and impo s a e
analysed a he le el o all goods and se ices acco ding o demand ( o eign and domes ic,
espec i ely) and ela i e p ices.
Financing me hods ia bank c edi , bond and equi y issuing, as well as inancial in es -
men beha iou a e hen desc ibed o each agen . The adjus men i em is he s a is ical
disc epancy be ween he eal sec o accoun s om INSEE and he inancial accoun s by
Bank o F ance. Changes in asse s and liabili ies, as well as in es men s and changes in
in en o ies, combined wi h he e alua ion accoun s o capi al gains o losses, allow o
he ansi ion o he accumula ion accoun s om one yea o he nex in an SFC manne .
The ea men o O he Changes in Volume (OCV) and o e alua ions is impo an and
a he echnical. Wi hou del ing in o he de ails, i su ices o say ha o each i em o
he balance shee an OCV o asse p ice mus be w i en explici ly o ensu e s ock– low
consis ency. Table 1 shows he balance shee s uc u e o he domes ic and o eign sec o s.
Mac oeconomic policy e alua ion in an SFC econome ic model 375
Jou nal compila ion © 2025 Edwa d Elga Publishing L d© 2025 The Au ho
Table 1 Symbolic balance shee s uc u e o economic agen s
Non- in.
co po a ions
Financial ins i u ions
Go e nmen Households Res o he
wo ldBanks Banque de F ance
Asse Liab. Asse Liab. Asse Liab. Asse Liab. Asse Liab. Asse Liab.
NFA1P oduced non-
inancial asse s pK
K
FF
1
1pK
K
BB
1
1pK
K
GG
1
1pK
K
HH
1
1
NFA12/13 In en o ies (12) +
aluables (13)
pK
K
FF
12 12 pK
K
GG
12 12
pK
K
HH
12 12
pK
K
FF
13 13
NFA2Non-p oduced
non- inancial
asse s
pK
K
FF
22pK
K
BB
22pK
K
GG
22pK
K
HH
22
F1Mone a y gold
and SDRs pG
G
CB CB pG
G
CB CB
F2
Bills and coins
H
F
H
B
H
CB
H
H
H
R
Digi al cu ency
EH
F
EH
B
EH
EH
G
EH
H
Re inancing
be ween inan-
cial ins i u ions
RF B
RF
CB
RF
R
Bank ese es
RES
RES
Go . accoun
a CB
D
L
CB
GDA
GCB
Ta ge 2
TRGT 2
TRGT 2
Deposi s D
A
FD
A
BD
L
BD
A
CB D
L
CB D
A
GD
L
GD
A
HD
A
RD
L
R
F3
Public secu i ies pB
B
FA
F
A
GG
pB
B
B
A
B
A
GG
pB
B
CB A
CB
A
GG
pB
B
G
L
G
L
pB
B
RA
R
A
GG
Fo eign secu i ies pB
B
FA
F
A
RR
pB
B
BA
B
A
RR
pB
B
CB A
CB
A
RR
pB
B
GA
G
A
RR
pB
B
HA
H
A
RR
pB
B
R
L
R
L
O he secu i ies pB
B
FL
F
L
pB
B
BA
B
A
pB
B
B
L
B
L
pB
B
CB A
CB
A
pB
B
GA
G
A
pB
B
HA
H
A
pB
B
RA
R
A
(con inues o e lea )
Eu opean Jou nal o Economics and Economic Policies: In e en ion, Vol. 22 No. 3376
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Non- in.
co po a ions
Financial ins i u ions
Go e nmen Households Res o he
wo ldBanks Banque de F ance
Asse Liab. Asse Liab. Asse Liab. Asse Liab. Asse Liab. Asse Liab.
F4Loans LA
FLL
F
L
A
B
LA
CB
L
L
G
L
L
H
LA
RLL
R
F5[Domes ic] Equi y
and in . und
sha es
pE
E
FA
F
A
DD
pE
E
F
L
F
L
DD
pE
E
BA
B
A
DD
pE
E
B
L
B
L
DD
pE
E
CB A
CB
A
DD
pE
E
CB L
CB
L
DD
pE
E
GA
G
A
DD
pE
E
HA
H
A
DD
pE
E
RA
R
A
[Fo eign] Equi y
and in . und
sha es issued by
RoW
pE
E
FA
F
A
RR
pE
E
BA
B
A
RR
pE
E
CB A
CB
A
RR
pE
E
GA
G
A
RR
pE
E
HA
H
A
RR
pE
E
R
L
R
L
F6Insu ance. pension
unds and s.g.s. AA
FAL
B
AA
GAA
HAA
R
F7Fin. de i a i es
and employee
s ock op ions
XA
FXL
BXA
GXA
HXL
R
F8O he accoun s
ecei able/
payable
ZA
FZA
BZA
CB ZA
GZA
HZA
R
F Financial weal h
FW F
FW B
FW CB
FW G
FW H
FW R
B90 Ne wo h
WLTH F
WLTH B
WLTH CB
WLTH G
WLTH H
WLTH R
Closes he column (sec o ) in low Closes he ow (ins umen ) in low
Table 1 (con inued)
Mac oeconomic policy e alua ion in an SFC econome ic model 377
Jou nal compila ion © 2025 Edwa d Elga Publishing L d© 2025 The Au ho
Wi h espec o non- inancial asse s, a dis inc ion is made be ween p oduced cap-
i al (p oduc i e capi al and housing), ou s anding s ocks and non-p oduced capi al
(land), he sha p ise in p ice o which is one o he cha ac e is ics o inancialised
capi alism and has had a signi ican mac oeconomic impac , pa icula ly in he las
h ee decades.
Fo inancial asse s, a spli is made adi ionally be ween mone a y gold and SDRs,
cash and deposi s, secu i ies, loans, equi ies, insu ance and pension unds, inance de i a-
i es and o he accoun s ecei able. Fo a be e unde s anding o mone a y policy, depos-
i s a e analysed in mo e de ail wi h a subdi ision be ween bills and coins, e inancing
be ween inancial ins i u ions, bank ese es, he go e nmen accoun a he cen al bank,
TARGET2 and o he deposi s. Two i ems dese e pa icula a en ion. On he one hand,
he go e nmen ’s accoun a he cen al bank is isola ed o s udy he e ec s o helicop e
money (Mazie /Reyes 2022). On he o he hand, TARGET2 co esponds o he balance
o he eal and inancial exchanges be ween F ance and he es o he Eu ozone. They
a e, espec i ely, on he asse side o he Bank o F ance and on he liabili y side o he
ECB, hus appea ing in he column o es o he wo ld in he con en ion ha has
been adop ed and a e conside ed exogenous ( hei de e minan s lie la gely ou side o he
model). Secu i ies a e spli be ween public secu i ies (bonds issued by he go e nmen ),
o he domes ic secu i ies issued by i ms and inancial ins i u ions and o eign secu i ies
issued by he es o he wo ld and held by domes ic agen s. Equi ies a e also spli be ween
domes ic equi ies issued by i ms and inancial ins i u ions, and o eign equi ies issued by
he es o he wo ld and held by domes ic agen s.
The closu es o he model by main asse s a e impo an o explici . They help unde -
s and how he inancing needs gene a ed by he clima e in es men p og amme a e dis-
ibu ed among domes ic and o eign agen s. They a e as ollows:
• Fi ms balance hei accoun s by issuing he necessa y sha es.
• Households balance hei accoun by ge ing indeb ed wi h banks.
• Bank ese es balance he banks’ accoun s.
• The equilib ium be ween asse s and liabili ies o he cen al bank co esponds o he
missing equa ion o he model deduc ed om he w i ing o he o he balances.
• Public deb , in he o m o bank deb and bonds, balances he go e nmen ’s accoun .
• Deposi s on he liabili y side, as ep esen a i e o o eign deposi s held by domes ic
agen s, adjus he es o he wo ld’s accoun .
• Banks abso b all public bonds a ailable and p o ide c edi wi hou es ic ion.
• Banks balance he ma ke o p i a e domes ic bonds and he ma ke o domes ic
equi ies, he p ice o which depends on he p ice o o eign equi y, which has a
dominan e ec .
• Fo eign bonds and equi y issued by he es o he wo ld equal hei domes ic
demand.
4 ASSESSMENT OF THE INVESTMENT PROGRAMME FOR THE
LOW-CARBON TRANSITION IN FRANCE
4.1 The Pisani-Fe y–Mah ouz epo
The PFM epo p o ides a de ailed assessmen o he in es men s needed in F ance o
achie e ca bon neu ali y by 2050. I assesses he mac oeconomic impac o emission
educ ion policies in wo complemen a y ways.
Eu opean Jou nal o Economics and Economic Policies: In e en ion, Vol. 22 No. 3384
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The consequences in e ms o agen s’ asse and liabili y s uc u es a e signi ican . Public
deb alls signi ican ly in he medium e m (−6 pe cen o GDP) due o he imp o emen
in he public balance, con a y o wha is expec ed in he PFM epo . Household deb ,
howe e , inc eases signi ican ly (6 pe cen o GDP in he medium/long e m). On he
co po a e side, i ms’ ne deb does no inc ease signi ican ly; i is hei ne equi y issuance
ha g ows a nea ly 24 pe cen o GDP due o a sha p educ ion in inancial asse hold-
ings. This decline is explained by he wo sening in i ms’ o e all a e o p o i and he all
in eal inancial p o i abili y du ing he 2020s.
O e all, go e nmen inancial weal h imp o es (by a ound 6 pe cen o GDP). Howe e ,
he inancial weal h o companies wo sens s uc u ally (−20 pe cen o GDP in he long
e m), as does ha o households (−10 pe cen o GDP), while he es o he wo ld inc eas-
ingly becomes a c edi o o F ance (20 pe cen o GDP). The du abili y o such ends is
ques ionable, bo h in e ms o ex e nal deb (how high can i go?) and i ms’ deb . The inan-
cial capaci y o he la e seems o de e io a e, e en i some highly indeb ed public companies
(such as EDF and SNCF) could bene i om he imp o emen in public inance.
P ice ends can be examined in g ea e de ail. The p ice slippage clea ly appea s in he
sho e m bu is no du able acco ding o SFC FR. P ices and ULC e u n o baseline le els
in he 2030s, despi e he all in he unemploymen a e. A b eakdown o he de e minan s o
ULC (Figu e 2) shows ha he down u n is due o he all in o al labou cos s pe head (close
o wages pe head), which is mo e p onounced han he de e io a ion in p oduc i i y pe head
(−1 pe cen in he medium- o-long e m). Wage dynamics and mode a ion p e ail, wi hou
igge ing an upwa d wage-p ice spi al. The ade-o s in e ms o income dis ibu ion a e
signi ican . Real wages pe head imp o e, bu only mode a ely (1 pe cen in he medium- o-
long e m). The a io o eal wages o p oduc i i y, ha is, he sha e o wages in alue added,
ises by only a li le mo e (2 pe cen in he medium- o-long e m). Howe e , his means ha
he sha e o p o i s alls in he long e m. Companies accep a wo sening in hei p o i ma -
gins, which explains he p ice mode a ion in he 2030s. This is a possible scena io, bu no
necessa ily he mos likely one, especially in he con ex o he sha p wo sening in co po a e
inancial posi ions obse ed abo e. This poin is discussed in g ea e de ail below.
An analysis o he ou pu - o-capi al a io (a cons an p ices) sheds u he ligh . This
a io is used o de e mine p ices and i ac s as a subs i u e o a p oduc ion capaci y u ili-
sa ion a e in he in es men unc ion, in bo h cases posi i ely. A all in he a io, e lec ing
lowe capaci y u ilisa ion, con ibu es o lowe p ices. Howe e , he ou pu - o-capi al a io
alls s eadily bu mode a ely (−8 pe cen o e he long e m), due o he scale o he in es -
men s made, wi h a smalle e ec on p oduc ion (see Figu e 1). Ene gy ansi ion in es -
men s con ibu e less o inc easing p oduc ion capaci y (
k
p is lowe ). The all in he
ou pu - o-capi al a io is a poo e lec ion o a all in he capaci y u ilisa ion a e. The
capaci y u ilisa ion a e is undoub edly highe TUCk
a
K
p
M
M
1
1
and his ough o be
co ec ed. Howe e , his co ec ion would be a he mino . The all in he in la ion a e
linked o he dec ease in a
K
M
M
1
as desc ibed in he model is in ac only −0.4 pe cen
o e 18 yea s (see below). E en i his downwa d e ec we e co ec ed, he e u n o he
in la ion a e o i s e e ence pa h alue would pe sis .
ULCuni labou cos
ma ke sec o non inancial i ms inancia
ll ins i u ions householdsandNPISH
,
Mac oeconomic policy e alua ion in an SFC econome ic model 385
Jou nal compila ion © 2025 Edwa d Elga Publishing L d© 2025 The Au ho
ULC WLCLCW T
a
M
MM pHLM
M
M
p
ULC
WLCT
a
M
MSC
HM
LM
M
M
p
1
whe e LC LC LC LC labo con ibu ions
Mp
Fp
Bp
H
, TT
TT
LMLFLBLH
pp
pp
= axes on
pay oll and on p oduc ion and LC
WW
pHSC
HM
MM
.
Figu e 2 Wage-p ice dynamics o PFM p og amme acco ding o SFC FR
Eu opean Jou nal o Economics and Economic Policies: In e en ion, Vol. 22 No. 3386
Jou nal compila ion © 2025 Edwa d Elga Publishing L d
© 2025 The Au ho
To al labou cos pe wo ke
WLCT
N
MSC
HM
LM
S
M
p
M
1
a kK
po
MpM
=1
TUC
= a
a
a
kK
M
po
M
M
pM
= =
1
Capaci y u ilisa ion a e ( aux d’u ilisa ion des capaci és de p o-
duc ion in F ench).
The consume p ice equa ion is:
ln ..ln .lnpULC p
C
HM
IM
03 09 01
ln ..ln .ln.ln
.
ppUL
CU
LC
C
HC
HMM
01 04 01 02
0
11
11020
30
1
1
11
11
ln .. .p a
K
TSub
pY
IM
M
MP
Y
cc1
The e ec o he alls in he ou pu - o-capi al a io is hus:
p
p
p
p
a
K
a
K
C
H
C
HC
H
C
H
M
M
M
M
11 11
02.
MM
MM
M
M
a K
a K
a
K
02 1
1
11
./
/
02 08 0250004.. ..
4.5 P ese ing i ms’ p o i s and inc easing public suppo
Acco ding o he simula ions p esen ed abo e, he PFM in es men p og amme would
lead o a mode a e eco e y wi hou any las ing slippage in p ices, wi h a sligh educ ion
in public deb , bu a he expense o a de e io a ed si ua ion o i ms and households, and
a he cos o g owing ex e nal deb . The unce ain ies su ounding his ype o p ojec-
ion a e conside able, no leas because o he new na u e o he in es men s en isaged as
pa o he clima e ansi ion. Two a ian s o sensi i i y can be explo ed o shed ligh on
his issue, aking in o accoun a possible eac ion on he pa o bo h companies and he
go e nmen . The i s desc ibes a si ua ion in which companies p ese e hei p o i s o
a g ea e ex en a e 2030, a he cos o a mo e p onounced in la iona y su ge (0.5 pe
cen pe yea om 2030). In he second scena io, he go e nmen uses he iscal oom o
manoeu e a i s disposal o u he suppo companies and households h ough inc eased
subsidies and ans e s ( wice 10 billion eu os mo e pe yea s a ing in 2023). The esul s
o he scena io whe e i ms’ p o i s a e p ese ed a e p esen ed in Figu e 1, and he sce-
na io o inc eased go e nmen suppo in Figu e 3 (we limi ou sel es o he main esul s).
Sus ained highe in la ion o e he medium- o-long e m (+12 pe cen , ha is, a ound
0.7 pe cen p.a.) educes eal wages and allows a limi ed ise in he p o i sha e and
p o i a e. The all in eal incomes weighs on g ow h, which weakens. The public bal-
ance imp o es hanks o highe ax eceip s gene a ed by ising p ices, and public deb
as a pe cen age o GDP alls. The ade balance also imp o es, despi e he loss o p ice
Mac oeconomic policy e alua ion in an SFC econome ic model 387
Jou nal compila ion © 2025 Edwa d Elga Publishing L d© 2025 The Au ho
compe i i eness, which is mo e han o se by lowe impo olumes. Ne e heless, i
emains nega i ely a ec ed, and he inancial weal h o he es o he wo ld ( ha is,
F ance’s ne deb ) inc eases as much as in he p e ious scena io (by a ound 20 pe cen
o GDP). Household indeb edness inc eases as eal incomes all, and household inancial
weal h u he de e io a es. Thanks o a be e p ese a ion o p o i s, he inancial balance
Figu e 3 E ec s o he PFM p og amme wi h inc eased go e nmen suppo , acco ding o he
SFC FR model (baseline in solid line and inc eased go e nmen suppo in do ed line)
Eu opean Jou nal o Economics and Economic Policies: In e en ion, Vol. 22 No. 3388
Jou nal compila ion © 2025 Edwa d Elga Publishing L d
© 2025 The Au ho
o i ms wo sens less, hei p o i a e eco e s, hei liabili ies inc ease less and hei inan-
cial weal h alls less sha ply. Howe e , o e all, he es o a ion o p o i s hanks o highe
in la ion does no upse he esul s o he p e ious scena io. Fi ms a e sligh ly be e , wi h
households bea ing he b un o he adjus men .
Inc eased go e nmen suppo in he o m o mo e ans e s o households and subsi-
dies o businesses (20 billion eu os pe yea ) has, as Figu e 3 shows, only a limi ed impac
compa ed o he clima e ac ion shock: sligh ly mo e g ow h and in la ion, a be e p o i
a e, a public balance ha is ob iously wo se o bu e u ns o balance a e a ew yea s,
bu o he wise exhibi s simila ends. Despi e subs an ial public suppo (40 billion eu os
pe yea ), he b oad ou lines o he e e ence scena io emain unchanged. I should be
no ed, howe e , ha household subsidies designed o suppo he clima e ansi ion a e
no well-desc ibed in he scena io. In ac , he subsidies a e paid o all households in
a uni o m manne , whe eas he spi i o eco e y policies is ha hese subsidies should
be a ge ed owa ds he mos disad an aged households and hose mos a ec ed by he
low-ca bon policy. I his poin we e conside ed, he e ec s would undoub edly be mo e
a ou able o households.
Na u ally, ou wo k is no wi hou limi a ions. Fi s , he shocks pe o med a e ixed o
he simula ions. To illus a e his, public in es men in olume is inc eased by 11.7 billion
eu os in 2023 and his inc ease is assumed cons an om hen on, ega dless o changes
in he business cycle ha may oblige he public au ho i ies o u he inc ease o educe
capi al o o he o ms o expendi u e. Second, in his e sion, we look a he esul s o he
model pos -shock compa ed o ou baseline in a single scena io ha combines changes in
se e al se ies simul aneously: p ices, subsidies, p oduc i i y, public in es men and o he s.
In ano he pape , we obse e he esul s o he shocks one a he ime (see, o ins ance,
he pa ‘basic a ian s’ in Mazie /Reyes 2022). Thi d, ou model is based on ou assump-
ions, which a e in u n he esul o a combina ion be ween heo e ical and s a is ical
signi icance ha is o en ime-consuming o a i e a . This is e en mo e ime-consuming
when upda ing he da ase ( oughly e e y h ee yea s) and all beha iou al equa ions ha e
o be upda ed in o de o ac o in he obse a ions added. A ou h limi a ion is he high
le el o agg ega ion o he model, which p e en s i om cap u ing he s uc u al e ec s
o clima e ansi ion policies.
5 CONCLUSION
This pape seeks o assess he e ec s o clima e ansi ion policies and, mo e speci ically, he
impac o he as in es men p og amme en isaged o achie e ca bon neu ali y in 2050
in F ance. I d ew on he da a ga he ed in he PFM epo and in eg a ed hem in o he
SFC FR model buil using F ench da a. While he model is highly agg ega ed and ill-sui ed
o cap u e he s uc u al e ec s o clima e ansi ion policies, i does ha e he ad an age
o desc ibing he dis ibu ion and inancing mechanisms in a comp ehensi e way. All he
eedback e ec s a e well-desc ibed, p o iding addi ional insigh in o he assessmen s made.
Simula ions ca ied ou wi h SFC FR lead o signi ican ly di e en esul s om hose
in he PFM epo . Public indeb edness does no inc ease; in ac , i alls, and he public
inance si ua ion imp o es because o mo e sus ained ac i i y. A mode a e slippage in
p ices is obse ed du ing he i s pe iod, bu his does no las mainly because compa-
nies accep a educ ion in hei p o i ma gins. The inancial si ua ion o i ms wo sens.
Household deb inc eases. Finally, he ade balance wo sens pe manen ly, and indeb ed-
ness wi h espec o he es o he wo ld inc eases signi ican ly. Mo e han public indeb -
edness, ex e nal indeb edness is he p oblem.
Mac oeconomic policy e alua ion in an SFC econome ic model 389
Jou nal compila ion © 2025 Edwa d Elga Publishing L d© 2025 The Au ho
ACKNOWLEDGEMENTS
The au ho s would like o hank he edi o , an anonymous e e ee and pa icipan s a
a semina held a I4CE in Janua y 2024 o hei cons uc i e commen s and sugges-
ions which con ibu ed o imp o e he pape . Jacques Mazie acknowledges suppo
o he Chai Ene gy and P ospe i y, unde he aegis o La Fonda ion du Risque. Luis
Reyes and Chin Yuan Chong acknowledge he suppo o he Chai LCL‐Kedge Impac
Finance.
The da a ha suppo he indings o his s udy a e a ailable inh ps://luis eyeso iz.
o g/ esou ces/.
A good deal o he da a in he model we e de i ed om he ollowing esou ces a ail-
able in he public domain: INSEE (h ps://www.insee. /en/s a is iques), Banque de
F ance (h ps://webs a .banque ance. ).
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