Climate change and its consequences are the most important issues affecting the UK economy over the coming century and will present a critical challenge for the UK government moving forward. In particular, the challenge of getting to net zero by 2050 is going to have major ramifications for the macroeconomy. In this commentary, I lay out some of the work that has been done on the implications of climate change and the transition to net zero for the macroeconomy. Economic activity as currently structured involves using fossil fuels as part of the production process. But this releases carbon dioxide into the atmosphere and leads to higher temperatures. I take this as given, simply noting that if this rise in temperature and the change in weather patterns associated with it are going to be stopped, if not reversed, at some point in the future, then we have to move to a ‘net zero’ (or even ‘net negative’) economy in which output is produced using only those inputs which do not produce greenhouse gases.

We examine the start date of the Great Recession across OECD countries. The Sahm Rule identifies the start of recession in the US to the beginning of 2008 but in most other OECD countries it identifies the start after that identified by two successive falls in quarterly GDP. We establish our own rule for predicting recession using the fear of unemployment series to predict recession. We show a 10-point rise in the series compared to its previous 12 month low predicted the onset of the Great Recession in both the United States and Europe.

Against the background of the European Commission’s reform plans of the Stability and Growth Pact, this paper uses NiGEM to simulate the macroeconomic implications of re-applying the fiscal rules in 2024. Next to returning to the unreformed rules, the most prominent options include an expenditure rule. Our results indicate that re-applying the unreformed rules leads to severe cuts in public spending. An expenditure rule would, however, not necessarily alleviate the fiscal adjustment burden. Instead, our simulations show that great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way.

Emissions are directly linked to economic output and consequently subject to business cycle fluctuations. The present study analyses the interactions between climate policies and business cycles through the lens of a New Keynesian dynamic stochastic general equilibrium model. We compare a static cap-and-trade policy with a dynamically adjusting policy in terms of macroeconomic stabilisation, welfare and emissions price dynamics. The results of the quantitative evaluation suggest that a constant policy leads to lower aggregate volatility but is associated with larger welfare costs. In contrast, under the dynamic policy emissions prices and labour markets display less variations.

Inflation rates and their convergence within Euro area have been a major concern, since well before the advent of the single currency. Inflation differentials are a normal phenomenon in any monetary union and even in long-established monetary unions. The aim of this research is to examine the main factors of inflation differentials in the Euro-zone for the period 1999–2018. Our empirical estimates appear to suggest that a one-percentage-point increase in the positive output gap typically leads to an increase of about 20 basis points in the inflation rate of EMU countries. We also find three structural breaks, in 2004, 2008 and in 2010. Since the monetary policy of the European Central Bank is geared at maintaining low and stable inflation, the productivity growth should be increased, and the real effective exchange rates should be decreased and become more homogeneous among EMU. Therefore, countries’ inflation differentials may become less persistent.

Housing price comovements are an important issue in economics. This study focuses on monthly housing prices of 99 major cities in China for the years 2010–2019 by using correlation-based hierarchical analysis and synchronisation analysis, through which one could determine interactions and interdependence among the prices, heterogeneous patterns in price synchronisations and their changing paths over time. Empirical results show that the degree of comovements is slightly lower after March 2017 but no persistent drop is found. Several groups of cities are identified, each of which has its members showing relatively strong but volatile price synchronisations. Certain cities show potential of serving as price leaders within a group. Results here could be useful to policy analysis regarding housing price comovements.