The dynamic effects of pollution on growth and inflation: a derivation of the new keynesian environmental canonic model

Abstract

The article constructs a three-equation model, in which it relates ecological variables with traditional macroeconomic variables, assuming that economic agents decide to look ahead. In the so-called New Keynesian Environmental Canonic Model, environmental preservation is a condition for economic growth with price stability, in this model, pollution shocks cause inflation and fall in the aggregate product of the economy due to the scarcity of environmental assets.

Keywords: Environment; Macroeconomics; Canonic Model; New Keynesian; Scarcity.

DOI: https://doi.org/10.6008/CBPC2179-6858.2019.004.0028

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