Our economy, environment and financial system cannot be viewed in isolation: each interacts with the other. However, the current models that inform policy making lack a clear understanding of the links between these three systems.
The DEFINE (Dynamic Ecosystem-FINance-Economy) model is a new global stock-flow-fund ecological macroeconomic model that analyses the interactions between the ecosystem, the financial system and the macroeconomy. It aims at defining the boundaries of economic activity and analysing policies and strategies that can allow our societies to live within the biophysical limits of a finite planet.
DEFINE draws on the post-Keynesian and ecological economics tradition. It combines the stock-flow consistent approach developed by Godley and Lavoie with the flow-fund model of Georgescu-Roegen. By doing so it provides an integrated approach to the combined analysis of physical and monetary stocks and flows. The model incorporates explicitly the laws of thermodynamics, the carbon cycle, the climate change damages, the waste generation process, the endogeneity of money, the impact of finance on economic activity and the role of income distribution.
DEFINE produces various scenarios for the future of the ecosystem and the global economy. It is also used to evaluate the long-run effects of various types of environmental policies and strategies, paying particular attention to the role of finance.
More information about DEFINE can be found available here.