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Report
800,000 Years of Climate Risk
We use a long history of global temperature and atmospheric carbon dioxide (CO2) concentration to estimate the conditional joint evolution of temperature and CO2 at a millennial frequency. We document three basic facts. First, the temperature–CO2 dynamics are non-linear, so that large deviations in either temperature or CO2 concentrations take a long time to correct–on the scale of multiple millennia. Second, the joint dynamics of temperature and CO2 concentrations exhibit multimodality around historical turning points in temperature and concentration cycles, so that prior to the start of ...
Discussion Paper
What Do Financial Conditions Tell Us about Risks to GDP Growth?
The economic fallout from the COVID-19 pandemic has been sharp. Real U.S. GDP growth in the first quarter of 2020 (advance estimate) was -4.8 percent at an annual rate, the worst since the global financial crisis in 2008. Most forecasters predict much weaker growth in the second quarter, ranging widely from an annual rate of -15 percent to -50 percent as the economy pauses to allow for social distancing. Although growth is expected to begin its rebound in the third quarter absent a second wave of the pandemic, the speed of the recovery is highly uncertain. In this post, we estimate the risks ...
Report
Multimodality in Macro-Financial Dynamics
We estimate the evolution of the conditional joint distribution of economic and financial conditions. While the joint distribution is approximately Gaussian during normal periods, sharp tightenings of financial conditions lead to the emergence of additional modes. The U.S. economy has historically resolved quickly to the “good” mode, but we conjecture that poor policy choices could lead to prolonged periods of multimodality. We argue that multimodality arises naturally in a macro-financial intermediary model with occasionally binding intermediary constraints.