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800,000 Years of Climate Risk
Adrian, Tobias; Boyarchenko, Nina; Giannone, Domenico; Prasad, Ananthakrishnan; Seneviratne, Dulani; Xiao, Yanzhe (2022-09-01)
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 ...
Staff Reports , Paper 1031

Discussion Paper
Transition Risks in the Fed’s Second District and the Nation
Blickle, Kristian S.; Chakrabarti, Rajashri; Pinkovskiy, Maxim L. (2023-11-09)
Climate change may pose two types of risk to the economy—from policies and consumer preferences as the energy system transitions to a lower dependence on carbon (in other words, transition risks) or from damages stemming from the direct impacts of climate change (physical risks). In this post, we follow up on our previous post that studied the exposure of the Federal Reserve’s Second District to physical risks by considering how transition risks affect different parts of the District and how they differentially affect the District relative to the nation. We find that, relative to other ...
Liberty Street Economics , Paper 20231109

Working Paper
Understanding Climate Damages: Consumption versus Investment
Gibson, Matthew; Fried, Stephie; Casey, Gregory (2022-10-04)
Existing climate-economy models use aggregate damage functions to model the effects of climate change. This approach assumes climate change has equal impacts on the productivity of firms that produce consumption and investment goods or services. We show the split between damage to consumption and investment productivity matters for the dynamic consequences of climate change. Drawing on the structural transformation literature, we develop a framework that incorporates heterogeneous climate damages. When investment is more vulnerable to climate, we find short-run consumption losses will be ...
Working Paper Series , Paper 2022-21

Journal Article
The Bell Curve of Global CO2 Emission Intensity
Arnaut-Hull, Zoë; Jordà, Òscar; Nechio, Fernanda (2023-10-16)
Countries’ commitments to reduce carbon dioxide (CO2) emissions can have important implications for their economies. Data since the 1800s reveal that the amount of CO2 emissions generated for a given level of output follows a bell-shaped curve. Pairing this with projections of future economic growth can help in predicting future overall emissions. Comparing actual data with past projections for levels of emission intensity reveals that reductions have been slower than predicted over the past 40 years. This divergence highlights the challenges many countries may face in reaching their ...
FRBSF Economic Letter , Volume 2023 , Issue 27 , Pages 6

Working Paper
Robust Dynamic Optimal Taxation and Environmental Externalities
Li, Xin; Narajabad, Borghan N.; Temzelides, Ted (2014-05-29)
We study a dynamic stochastic general equilibrium model in which agents are concerned about model uncertainty regarding climate change. An externality from greenhouse gas emissions damages the economy's capital stock. We assume that the mapping from climate change to damages is subject to uncertainty, and we use robust control theory techniques to study efficiency and optimal policy. We obtain a sharp analytical solution for the implied environmental externality and characterize dynamic optimal taxation. A small increase in the concern about model uncertainty can cause a significant drop in ...
Finance and Economics Discussion Series , Paper 2014-75

Discussion Paper
Climate Change and Financial Stability: The Weather Channel
Blickle, Kristian S.; Morgan, Donald P. (2022-04-04)
Climate change could affect banks and the financial systems they anchor through various channels: increasingly extreme weather is one (Financial Stability Board, Basel Committee on Bank Supervision). In our recent staff report, we size up this channel by studying how U.S. banks, large and small, fared against disasters past. We find even the most destructive disasters had insignificant or small effects on bank stability and small and positive effects on bank income. We conjecture that recovery lending after disasters helps stabilize larger banks while smaller, local banks’ knowledge of ...
Liberty Street Economics , Paper 20220404

Working Paper
Temperature and Growth: A Panel Analysis of the United States
Phan, Toan; Colacito, Riccardo; Hoffman, Bridget (2018-04-11)
We document that seasonal temperatures have significant and systematic effects on the U.S. economy, both at the aggregate level and across a wide cross-section of economic sectors. This effect is particularly strong for the summer: a 1 degree F increase in the average summer temperature is associated with a reduction in the annual growth rate of state-level output of 0.15 to 0.25 percentage points. We combine our estimates with projected increases in seasonal temperatures and find that rising temperatures could reduce U.S. economic growth by up to one-third over the next century.
Working Paper , Paper 18-9

Working Paper
The Growth Effects of El Niño and La Niña: Local Weather Conditions Matter
Damette, Olivier; Couharde, Cécile; Generoso , Rémi; Mohaddes, Kamiar (2019-11-29)
This paper contributes to the climate-economy literature by analyzing the role of weather patterns in influencing the transmission of global climate cycles to economic growth. More specifically, we focus on El Niño Southern Oscillation (ENSO) events and their interactions with local weather conditions, taking into account the heterogeneous and cumulative effects of weather patterns on economic growth and the asymmetry and nonlinearity in the global influence of ENSO on economic activity. Using data on 75 countries over the period 1975-2014, we provide evidence for the negative growth effects ...
Globalization Institute Working Papers , Paper 374

Working Paper
Climate Change and Double Materiality in a Micro- and Macroprudential Context
Stiroh, Kevin J. (2022-10-13)
This paper presents a stylized framework of bank risk-taking to help clarify the concept of "double materiality," the idea that supervisory authorities should consider both the risks that banks face from climate change and the impact of a bankâ€™s actions on climate change. The paper shows that the concept of double materiality can be coherently embedded in a microprudential framework, but the practical implications could be quite similar to the implications of a single materiality perspective. The importance of a double materiality perspective becomes larger when one considers ...
Finance and Economics Discussion Series , Paper 2022-066

Journal Article
The Economics of Climate Change: A First Fed Conference
Rudebusch, Glenn D.; Hale, Galina; Jordà, Òscar (2019-12-16)
To better understand the implications of climate change for the financial sector and the broader economy, the Federal Reserve Bank of San Francisco recently hosted a conference on the economics of climate change to gather and debate the latest analyses from universities and policy institutions, nationally and abroad. It was the first Fed-sponsored conference devoted to investigating the economic and financial consequences and risks arising from climate change and potential policy responses.
FRBSF Economic Letter , Volume 2019 , Issue 31 , Pages 5

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