Blog

In the summer of 2024, I had the honor of being one of the 10 finalists in the Young Economist Competition at the European Central Bank (ECB) Forum on Central Banking in Sintra, Portugal. The young Economist competition, held annually, recognizes the role that young economists can play in shaping the future of Europe and offers 10 PhD candidates the opportunity to present their perspectives on the economic challenges we face today.

The theme of this year’s Forum was “Monetary policy in an era of transformation”, a timely exploration of the shifting dynamics in the global economy and how central banks can navigate these profound changes. Beyond the central issue of the rise and fall of inflation in the euro area, the Forum also emphasized other emerging challenges that could reshape economies, such as the stagnation of productivity, the threat posed by climate change and the degradation of biodiversity, as well as the increasing risk of geopolitical shocks.

As a finalist, I had the privilege of attending a diverse program that featured cutting-edge academic research, in-depth policy discussions, and high-level panel debates on topics ranging from the drivers of post-pandemic inflation to the economics of biodiversity. A key highlights for me was the opportunity to showcase my research to an audience that included not only leading academics but also policymakers, and market practitioners from across the globe. Engaging in discussions with experts and peers helped broaden my understanding of the challenges central banks face today, and how research in climate finance and macro-finance can contribute to addressing these issues. While inspiring on its own,  the Forum also underscored the importance of academic research in informing real-world policy decisions, especially in times of global uncertainty and transformation.

The winner of the 2024 Young Economist Competiton is  Tsvetelina Nenova (LBS). Tsvetelina studies international spillovers through real and financial channels. In her paper, Tsvetelina studies the international transmission of monetary policy through the portfolio rebalancing channel. She finds that global and regional safe assets play a key role in the international transmission of monetary policy. Specifically, US treasuries lead to global spillovers, whereas German Bunds only generate region spillovers.  Tvetelina's work also highlights that flights to safety - i.e. a reduction in the substitution between safe and risky assets during crises - impair monetary policy transmission between global safe and risky assets and within the euro area sovereign bond market. 

I was happy to be part of a  group of bright and kind young economists, and stand in the finale next to  Anastasiia Antonova (Aix-Marseille), Clement Bohr (Northwestern University), Arnaud Dyèvre (LSE), Manuel Menkhoff (LMU), Tsvetelina Nenova (LBS), Morgane Richard (UCL), Julia Selgrad (NYU), Eleonora Sfrappini (IWH) and Paolo Varraso (NYU). Their papers span a variety of policy-relevant areas and make innovative contributions to each respective field. You can find more information on the research of all finalists here.

To conclude, I would like to thank the President of the ECB, Madame Lagarde, the ECB’s Executive Board, as well as all other Forum participants for the interest taken in our research and the many insightful discussions. I would like also to thank the Young Economist Committee for their support throughout the Forum. If you are a PhD candidate in macroeconomics or macrofinance, I highly encourage you to keep an eye on the call for papers for the next edition!

On the 19th of June, I was invited to the Catshuis, the official residence of the Prime Minister of the Netherlands, as one of six young economists to engage in a conversation with the Minister of Finance Sigrid Kaag, Minister of Economic Affairs and Climate Micky Adriaansens and Minister of Social Affairs and Employment Karien van Gennip. The meeting aimed to foster a discussion on the broad welfare concept. In a short pitch, we, young economists, explained how our research relates to this theme and discussed the insights that come forward from our work. Additionally, we explored ways for enhancing the integration of the broad welfare concept into economic policy and for bridging the gap between policy and the economic science in this regard.

My perspective on the broad welfare concept and its importance have to a large extent been influenced  by Associate Professor in Economics of Wellbeing Nicky Pouw. Dr. Pouw's work, which is grounded in development economics, puts human wellbeing and inclusive development at the center, rather than the classical measures of economic prosperity. Dr. Pouw bundled her insights, which she gained from extensive research  on these topics as well as from field experiments in a vast number of development countries, in a recently published book, Wellbeing Economics. In her book, Dr. Pouw offers a new framework to think about economics - or rather to rehink economics -, arguing that, amid the many limits to growth we have been encountering over the past years, it is time to redirect our economy towards more sustainable and socially just processes and outcomes. To serve this purpose, economic growth must be viewed as a means to an end, rather than a goal in itself.  In other words, economic growth should be used to promote the well-being of these individuals, who must be at the  center of our interest. Welfare in broad terms, then, includes all socio-economic aspects that influence their well-being.

Historically, many economists have given thought to what welfare entails in broad terms, what these socio-economic aspects are that influence well-being, and how welfare can be accurately measured. This includes - amongst others - Adam Smith (1723 - 1790), Vilfredo Pareto (1848 - 1923), Arthur Cecil Pigou (1877 - 1959), but also Dutch economist Pieter Hennipman (1911 - 1994) and Arnold Heertje (1934 - 2020) - in whose honor the annual lecture is delivered. Pieter Hennipman argued that welfare is something which is subjective. He viewed 'welfare' as a formal, empty, term -  meaning that it has no concrete definition but this  is rather given to it by each individual him- or herself, based on what provides utility to that individual. Arnold Heertje, who was a student of Hennipman, continued this line of thought and argued for a 'formal, subjective and broad concept of welfare within the public debate. Heertje already warned for limits to growth, arguing that welfare is much broader than just economic production, consumption and income, but also includes aspects  that affect our quality of living and well-being in general - for example the quality of public institutions and the environment.

Also in more recent times, large contributions have been made to the study of welfare in broad terms. Most notable is the work of Amartya Sen, laureate of the Nobel Prize in Economic Science in 1998, for his work on social welfare. Sen's has worked predominantly  questions such as how fundamental resources should be divided within a society, how welfare and poverty can be measured, and how individual values can be included in collective decision-making, paying special attention to the least well off within society. His work inspired many academics, but also received many attention from within policy circles. In 2008, the French Government asked Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi, how the wealth and social progress of a nation should be measured.  The report, known as the Stiglitz-Sen-Fitoussi report, concludes that it is misleading to evaluate the performance of an economy by focusing solely on economic growth and advocates a shift in emphasis from measuring economic production to measuring people's well-being, with more prominence being given to the joint determination of income, consumption, wealth and their distribution. It is important to emphasize that this does not mean that economic growth is wrong or something we should not strive for - rather, the message is that there are many other aspects that - alongside to growth - should become part of  our performance indicators. In essence, the report underscores that the performance of an economy cannot be viewed as separate from the environment, distributional considerations or other aspects of welfare in broad terms. When these aspects are not properly accounted for, limits to growth may be encountered - as we have been encountering over the past couple of years. 

To ensure that we don't keep running up against these limits, the broader aspects of welfare should receive a sufficienty large weight when evaluating the performance of our economies. What that the trade-offs or when determining those is something  the economic science can inform us about. This requires researchers to go beyond the classic models and strive to obtain an understanding of how distinct aspects of the broad welfare concept relate to each other and interact with each other. When it comes to policy-making, the successful integration of these aspects does not only call for a shift in focus from economic production to people's well-being, but  inherently calls for shift in focus towards  the long-term. When it comes to the determination of effective climate policies, which has a large intergenerational dimension, such a shift is of first-order importance. The current costs of action might be large, but delay in the implementation of effective policies introduce much larger costs on future generations. Costs of mitigation grow as climate risk intensifies, and so do economic losses due to physical impacts. Importantly, there is also a large, non-monetary component to these costs, as climate change threatens the livability of the planet and therefore directly affects well-being. The non-linearly growth of the costs of delay over time highlight the need for action today. 

While a shift from the short- to the long-term is crucial from an environmental perspective, it is relevant when thinking about the broad welfare concept in general. People's well-being depends to a large extent on their future prospects, and uncertainty or the lack of security regarding this can have substantial, negative effects on one's perceived well-being. It therefore is crucial to consider what the effect is of current policies on people's opportunities in the long run. 

The other young economists that participated in the event are Charan van Kervel (Radboud University), Simon Toussaint (University of Utrecht),  Wouter Leenders (UC Berkley), Emilie Rademakers (University of Utrecht) and Elisa de Weerd (Erasmus University Rotterdam).  Based on our research interests, we were allocated to different sub-themes related to broad propserity, i.e. 'sustainability' (Charan, Yasmine), 'distribution of wealth' (Simon, Wouter) and 'labour market' (Emilie, Elisa). 

To conclude, I would like to thank the Ministers for devoting their attention to this important topic, and for taking the time to listen with great interest to the insights of young economists. You can read more about the event and the views brought forward by all young economists in the ESB article 'Promovendi vragen meer aandacht voor de verdeling van welvaart' (in Dutch).

The Tinbergen Institute annually organizes a three-day lecture series, which is dedicated to upcoming field within economics. This year, the lecture series were dedicated to Empirical Environmental and Energy Economics, and were delivered by Hunt Allcott, Professor of Global Environmental Policy and Economics at Stanford University. During the lectures, Professor Allcott explored with the students the latest empirical evidence on climate impacts, addressing critical aspects such as the social costs of carbon, and policy design challenges faced by governments in their pursuit of emissions reduction and climate change adaptation. 

Together with Antonia Kurz, I had the opportunity to interview Professor Allcott, who is widely recognized as a leading expert in the field of environmental policy, energy systems, and behavioral economics. We asked for his insights on climate change, the effectiveness and distributional consequences of environmental policies, and the importance of interdisciplinary research within this rapidly expanding field. Below, I post some of the questions and answers we asked and which, from my own point of view, are most relevant in the debat on the effectiveness and fairness of climate policies.  

To sustain a livable planet for future generations, we need a long-term perspective. However, short-termism is inherent to politics, and this much affects the implementation of effective climate policies. A discussion at the heart of climate change economics is how to evaluate the welfare of future generations, and which social discount rate to use. How do you view the trade-off between current and future generations?

"There are a couple of considerations. The first is that there are many different investments we need to make as a society, such as in education, public transport, roads, bridges, poverty reduction, and new businesses. We thus need to make sure that we allocate funds to each of these investments in a way that makes sense in concert with all the other investments that we are making. One way to answer this question then, is by asking what the rate of return is we get on other investments and ensure we apply a similar rate to climate mitigation investments, considering the time horizon and the risk profile of the investments. An alternative is to start from first principles and think about how much we would want to invest in our futures. As we will be richer in the future, and hence the value of additional consumption will be less than when we are poorer, we might want to forecast how much richer we will be in the future when climate investments pay off. That calculation can then be used to determine the interest rate one would accept when saving money from our current state to this future, richer state." 

What do you think is currently the biggest challenge for effective climate policies? Do you think that distributional considerations are sufficiently considered in policy design?

"The biggest challenge for effective climate policies is that many current policies are less effective at reducing CO2 emissions than alternatives such as carbon pricing. Mandating renewable energy sounds great. Subsidizing electric cars sounds great. Energy efficiency subsidies and standards sound great. All those policies are widely implemented due to popularity among the public but, as far as we can tell, they do not achieve as much CO2 reduction per dollar of social cost as a carbon tax would. The popularity of these policies might be attributed to distributional consequences, where subsidies benefit current consumers and companies while passing the negative consequences, including increased government debt, to future generations. As a result, the current policies lead to less greenhouse gas reduction than could be achieved."

The full interview can be read on the Tinbergen Times.