Assessing Integrated Assessment Models for Building Global Nature-Economy Scenarios

This chapter reviews the empirical evidence on price stickiness in the euro area. We provide an overview of the different sources of granular consumer and producer price data now available in the euro area. We document new stylized facts on price adjustment in the euro area over the last 20 years. We first present results on the frequency and size of price adjustment in the cross-section dimension. Then we describe some results on the evolution of price stickiness over time. We also derive some implications for the micro-foundations of macro models, discussing the consistency of available evidence with predictions of state- and time-dependent modelPolicymakers are increasingly calling for the development of scenarios to explore the economic consequences of nature loss and transition policies, particularly at a global scale and macroeconomic level. In this paper, we review global integrated-assessment models (IAMs) linking nature and the macroeconomy and assess their suitability to help build such scenarios. We perform an in-depth analysis of both ‘stylised’ and ‘applied’ IAMs, and critically assess how they represent dependencies of the macroeconomy on nature, as well as policies to reverse nature loss. We find that applied IAMs are generally skewed to capturing the dependency of the economy to selected provisioning ecosystem services, with regulating and maintenance services less represented. As these models tend to focus on the land-use and climate drivers of biodiversity loss, the transition policies they capture only aim to mitigate those drivers and overlook other drivers of nature loss such as pollution or invasive alien species. We also find that some theoretical assumptions in the core macroeconomic part of applied models may tend to mitigate the potential macroeconomic consequences of nature loss and nature transition policies. This contrasts with the results of the ‘stylised’ models we review, which tend to represent the loss of natural capital and biodiversity as having significant impacts on the macroeconomy. However, stylised models make it hard to represent the impact of the loss of specific ecosystem services or specific policies to protect nature. Building on this analysis, we explore the challenges and identify future avenues for the use of IAMs in scenarios that account for the importance of nature and biodiversity for economic activity.