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Working Paper
Projecting the Impact of Rising Temperatures: The Role of Macroeconomic Dynamics
We use theory and empirics to distinguish between the impact of temperature on transition (temporary) and steady state (permanent) growth in output per capita. Standard economic theory suggests that the long-run growth rate of output per capita is determined entirely by the growth rate of total factor productivity (TFP). We find evidence suggesting that the level of temperature affects the level of TFP, but not the growth rate of TFP. This implies that a change in temperature will have a temporary, but not a permanent, impact on growth in output per capita. To highlight the quantitative ...
Journal Article
Signs of Cyclical Weakness in Part-Time Employment?
Involuntary part-time employment—the share of people who work less than 35 hours per week but want and are available to work full-time—has increased since 2023. While this contrasts with steady declines during previous cyclical expansions, it is consistent with the recent rise in unemployment. Examining worker transitions shows that fewer workers have found full-time work and a growing number have remained stuck in part-time employment. Though levels are only slightly elevated since 2023, this pattern may hint at emerging cyclical weakness in the labor market.
Journal Article
What Do Financial Officers Predict for Price Growth?
Survey responses from chief financial officers and other financial decisionmakers yield a new measure of inflation expectations. Rather than asking about expectations for overall inflation, this survey asks about expected price growth at each respondent’s business. Aggregating survey responses provides an economy-wide indicator that tracks well with actual core consumer price index inflation. Survey responses collected before and during the recent oil shock imply that core inflation could remain elevated this year if the historical relationship between financial officer expectations and ...
Journal Article
How Long Do Rising Temperatures Affect Economic Growth?
How might rising temperatures around the world affect the growth rate of GDP per person? Examining data across countries over the past half-century shows that a change in temperature affects GDP growth, but only temporarily. Combining estimates from past data with a simple growth model can help project the impacts of future higher temperatures on GDP per person by country. These projections suggest that total global losses in output per person could be substantial, though smaller than if a given change in temperature had a permanent effect on GDP growth.
Journal Article
Impact of U.S. Labor Productivity Losses from Extreme Heat
Extreme heat decreases labor productivity in sectors like construction, where much work occurs outdoors. Because construction is an important component of investment, lost productivity today will slow how much capital is built up for future use and thus can have long-lasting impacts on overall economic outcomes. Combining estimates of lost labor productivity due to extreme heat with a model of economic growth suggests that, by the year 2200, extreme heat will reduce the U.S. capital stock by 5.4% and annual consumption by 1.8%.
Journal Article
The Economy’s Response to Potential Climate Policy
Uncertainty about U.S. climate policy in the future creates risk that affects the investment decisions businesses make today. If firms expect future policy to raise the cost of carbon emissions, then they could react to this by both shifting investment towards cleaner capital and reducing overall investment. These two responses lead to lower emissions, even if no actual climate policy is in place. Evidence suggests that this risk encourages companies to voluntarily reduce emissions using internal carbon prices and other mechanisms.
Working Paper
Recycling Carbon Tax Revenue to Maximize Welfare
This paper explores how to recycle carbon tax revenue back to households to maximize welfare. Using a general equilibrium lifecycle model calibrated to reflect the heterogeneity in the U.S. economy, we find the optimal policy uses two thirds of carbon-tax revenue to reduce the distortionary tax on capital income while the remaining one third is used to increase the progressivity of the labor-income tax. The optimal policy attains higher welfare and more equality than the lump-sum rebate approach preferred by policymakers as well as the approach originally prescribed by economists -- which ...
Working Paper
Seawalls and Stilts: A Quantitative Macro Study of Climate Adaptation
Can we reduce the damage from climate change by investing in seawalls, stilts, or otherforms of adaptation? Focusing on the case of severe storms in the US, I develop a macroheterogeneous-agent model to quantify the interactions between adaptation, federal disaster policy, and climate change. The model departs from the standard climate damage function and incorporates the damage from storms as the realization of idiosyncratic shocks.I find that while the moral hazard effects from disaster aid reduce adaptation in the USeconomy, federal subsidies for investment in adaptation more than correct ...
Working Paper
Understanding the Inequality and Welfare Impacts of Carbon Tax Policies
This paper develops a general equilibrium lifecycle model to explore the welfare and inequality implications of different ways to return carbon tax revenue back to households. We find that the welfare maximizing rebate uses two thirds of carbon-tax revenue to reduce the distortionary tax on capital income while using the remaining one third to increase the progressivity of the labor-income tax. This recycling approach attains higher welfare and more equality than the lump-sum rebate approach preferred by policymakers as well as the approach originally prescribed by economists __ which called ...
Working Paper
The Macro Effects of Climate Policy Uncertainty
Uncertainty surrounding if and when the U.S. government will implement a federal climate policy introduces risk into the decision to invest in capital used in conjunction with fossil fuels. To quantify the macroeconomic impacts of this climate policy risk, we develop a dynamic, general equilibrium model that incorporates beliefs about future climate policy. We find that climate policy risk reduces carbon emissions by causing the capital stock to shrink and become relatively cleaner. Our results reveal, however, that a carbon tax could achieve the same reduction in emissions at less than half ...