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

Integrated assessment models (IAMs) typically ignore the impact of climate change on economic growth. These models assume that the shocks caused by climate change impacts dissipate and have no persistence at all, affecting only the period when they occur. Persistence of shocks is a stylized fact of most macroeconomic time series and it provides a mechanism that could justify much 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 original scaling method in most IAMs can be interpreted as assuming an autonomous, costless, extremely large and effective reactive adaptation capacity. IAMs are extensively used for investigating the potential consequences of climate change on the world economy and its regions. These models typically consider a range of sectors such as agriculture, energy, human health, water and coastal resources, human settlements and ecosystems, sea level rise and catastrophic impacts (i.e., large discontinuities in the climate system). Damage functions are commonly calibrated using meta-analysis of the sectoral estimates available in the literature in order to represent the impacts of climate change for a benchmark warming (e. The persistence of shocks in GDP and the estimation of the potential economic costs of climate change. Submitted for publication.