Reflections-in search of crosswalks between macroeconomics and environmental economics

This article considers the challenges for efforts to introduce environmental quality into modern macro models. These models describe the economy as a dynamic general equilibrium, often using a representative agent to characterize consumers. Macro models are calibrated using a composite of existing parameter estimates, accepted features of developed economies, and data on the economy of interest together with the conditions for a decentralized dynamic equilibrium. The task of introducing non-market goods into these models requires using consistent aggregate measures of environmental quality. This Reflections column focuses on the issues associated with this research challenge. It also examines the static general equilibrium analysis used in EPA's 2011 Prospective Analysis as a way to highlight the importance of addressing these issues.(JEL: Q50, Q58).