The persistence of shocks in GDP and the estimation of the potential economic costs of climate change

F. Estrada Porrua, R.S.J. Tol, C. Gay-Gracia

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Integrated assessment models (IAMs) typically ignore the impact climate change could have on economic growth. The damage functions of these models assume that climate change impacts have no persistence at all, affecting only the period when they occur. Persistence of shocks is a stylized fact of macroeconomic time series and it provides a mechanism that could justify larger losses from climate change than previously estimated. Given that the degree of persistence of climate impacts is unknown, we analyze the persistence of generic shocks in observed GDP series for different world regions and compare it to that of the leading IAMs. Under the working hypothesis of interpreting the direct impact of climate change as such shocks, the implications for growth are investigated for two RCP scenarios. The way of introducing climate shocks to GDP in most IAMs can be interpreted as assuming an autonomous, costless, large and effective reactive adaptation capacity.
LanguageEnglish
Pages155-165
Number of pages11
JournalEnvironmental Modelling & Software
Volume69
DOIs
Publication statusPublished - 2015

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Gross Domestic Product
Climate change
persistence
Economics
climate change
economics
cost
Costs
climate effect
macroeconomics
economic growth
Time series
time series
damage
climate

Cite this

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title = "The persistence of shocks in GDP and the estimation of the potential economic costs of climate change",
abstract = "Integrated assessment models (IAMs) typically ignore the impact climate change could have on economic growth. The damage functions of these models assume that climate change impacts have no persistence at all, affecting only the period when they occur. Persistence of shocks is a stylized fact of macroeconomic time series and it provides a mechanism that could justify larger losses from climate change than previously estimated. Given that the degree of persistence of climate impacts is unknown, we analyze the persistence of generic shocks in observed GDP series for different world regions and compare it to that of the leading IAMs. Under the working hypothesis of interpreting the direct impact of climate change as such shocks, the implications for growth are investigated for two RCP scenarios. The way of introducing climate shocks to GDP in most IAMs can be interpreted as assuming an autonomous, costless, large and effective reactive adaptation capacity.",
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The persistence of shocks in GDP and the estimation of the potential economic costs of climate change. / Estrada Porrua, F.; Tol, R.S.J.; Gay-Gracia, C.

In: Environmental Modelling & Software, Vol. 69, 2015, p. 155-165.

Research output: Contribution to JournalArticleAcademicpeer-review

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