Energy Modelling Macroeconomic Model

Questions: 1. What are the most significant messages that you can draw from your review of thisarticle?2. Describe what is meant by nesting in the context of energy modelling. 3.Why is Translog production function preferred by energy modellers?4.Develop a philosophical critique on the application of neo-classical productionfunction for modelling the impact of carbon tax on the economy? Answers: 1. Bottom-up and Top-down models can be linked to energy-economy modelling based on the model integration approach discussed by Jacobsen (1998). Best results are achieved by including most of the possibilities and characteristics of both approaches.Results of the integrated model being linked by the macroeconomic model are characterized by wider possibilities to analyze the diversified options of reducing the consumption and emission of energy (Jacobsen, 1998). More, conventional bottom-up and top-down models can be analyzed into interactions between economy, energy and the initiatives taken.The most important link between the macroeconomy and the sector supplying energy are the prices of heat and that of electricity as well as the investments in the sector supplying energy (Jacobsen, 1998).Nonetheless, principles and techniques must be chosen carefully in order to achieve problem-free integration outcomes (Jacobsen 1998). These outcomes include a reduction in the emission of effects of the individual initiatives within an integrated model like the Hybris which exhibit larger effects that those found in separate bottom-up and top-down effects. 2. In energy modelling, nesting is the hierarchical relationship of fitted effects. When an effect [Y] is within another effect [X] then Y is said to be nested within X. Nesting terms are typically specified from outer to inner for example X, Y[X] ("Launch the Fit Model Platform", 2016).3. According to Pavelescu (2011), translog production function represents a class of flexible functional forms for production functions, (Pavelescu, 2011). The translog production function doesnt assume rigid premises like perfect substitution between factors of production or perfect completion on the factors of production (Pavelescu, 2011).The translog production function concept facilitates the passage of a linear relationship between the factors of production and the output, to a nonlinear one. Because of this properties energy modellers can use the translog production function to for a second order estimation of linear-homogenous production, estimations of the Allen elasticity of substitution, app roximation of the production frontier or the calculation of the total factor productivity dynamics (Pavelescu, 2011). 4. Neoclassical production function is more optimistic than the biophysical and ecological approaches towards issues of scarcity of energy and the degradation of the environment. However, this optimism doesnt have to translate into a more optimistic approximation of the economic cost of climate or the environmental policies, generally (Truong, 2009).Using a conventional neoclassical production function can cause important overestimation of the economic cost of any economic or environmental policy like carbon tax on the economy. The necessity of this overestimation is that the Constant elasticity of substitution (CES) production function ignores the underlying technology relationship between inputs, and between inputs and outputs (Truong, 2009).Assuming a neoclassical function similar to CES allows transfer of parameters from the initial stage to integrate with new function parameters to be flexible and updated at the terminal point with new information from the changed combination of input. That is, assumptions of CES in the neoclassical function can still be observed locally if not internationally (Truong, 2009). References Jacobsen, H. K. (1998). Integrating the bottom-up and top-down approach to energyeconomy modelling: the case of Denmark. Energy Economics, 20(4), 443-461. Launch the Fit Model Platform. (2016). Jmp.com. Retrieved 29 October 2016, from https://www.jmp.com/support/help/Launch_the_Fit_Model_Platform.shtml Pavelescu, F. M. (2011). Some aspects of the translog production function estimation. Romanian Journal of Economics, 32(1), 41. Truong, T. P. (2009). Constant elasticity of substitution (CES) production function.