macro economy by linking various accounts through a set of identities and behavioral equations. There are relatively few examples of macro structural models being used for climate change policy. Notable exception include the Cambridge Econometric Energy-Environment-Economy model (Cambridge Econometrics 2014), the St. Lucia model of the World Bank and the IMF model described in Parry, Mylonas and Vernon, (2018).

- **Stock-flow Consistent Models:** These models are based on the interactions of the balance sheets of the private sector (banking and non-bank), household, government, external sector and monetary policy sectors. A key difference in these models and other models is that firms and households do not necessarily maximize a utility or profit function (see for example Monasterolo and Raberto (2018). The models have strong Keynesian effects and focus on disequilibrium behavior of firms and households. It is not always possible to model the balance sheet of all the economic actors since data are not readily available for data poor countries. The climate modules in these models are very similar to a DSGE or MS model.

- **Recursive Dynamic Computable General Equilibrium Models (DR-CGE):** Dynamic Recursive CGE models describe the behavior of economic agents with a system of equations.  The economic behavior in DR-CGE models is very tightly linked to standard economic theory. Generally, these models assume that all markets in the analyzed economy are in equilibrium (i.e., observed relative prices clear all markets simultaneously), and implicitly that the observed state of the economy reflects a constrained optimum. These were among the first models to be used to analyze a more granular level than the IAMS the impacts of climate change on economies and of economic policy on climate.

Given data constraints in some equations, several parameters were calibrated using the methodology outlined in Burns and Jooste (2019). Beyond customizations necessary to better capture the structure of the Pakistani economy, five significant features were added to the framework:

1. **A more disaggregated energy sector** was integrated into both the production and consumption sides given the importance of hydrocarbons as a source of greenhouse gas emissions and particulate pollution.

2. **An emissions and pollution module** were added to capture the main channels by which economic activity affects climate outcomes.

3. **Damage functions** were introduced to capture how pollution, flooding and higher temperatures impact economic activity by reducing working time; by reducing labor productivity; and by reducing agricultural productivity.

4. **Adaptation investment functions** were introduced to capture how investments to increase the climate resilience of the economy can reduce the damages that might otherwise occur.

5. **An informal sector** was introduced to ensure that economic behaviors unique to that part of the economy were properly captured by the model.

The following sub-sections describe the adjustments made to the standard MFMod structure to accommodate climate change in PAKMod.

# 3.1 GDP components

As in MFMod, the modeling of GDP comprises three measurements. GDP from the (i) expenditure side, (ii) production side and (iii) income side. Each of these are described below.

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