Climate Change Uncertainty Spillover in the Macroeconomy

Michael Barnett, William Brock, Lars Peter Hansen

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

The design and conduct of climate change policy necessarily confronts uncertainty along multiple fronts. We explore the consequences of ambiguity over various sources and configurations of models that affect how economic opportunities could be damaged in the future.We appeal to decision theory under risk, model ambiguity, and misspecification concerns to provide an economically motivated approach to uncertainty quantification. We show how this approach reduces the many facets of uncertainty into a lowdimensional characterization that depends on the uncertainty aversion of a decision maker or fictitious social planner. In our computations, we take inventory of three alternative channels of uncertainty and provide a novel way to assess them. These include (i) carbon dynamics that capture how carbon emissions affect atmospheric carbon in future time periods, (ii) temperature dynamics that depict how atmospheric carbon alters temperature in future time periods, and (iii) damage functions that quantify how temperature changes diminish economic opportunities. We appeal to geoscientific modeling to quantify the first two channels. We show how these uncertainty sources interact for a social planner looking to design a prudent approach to the social pricing of carbon emissions.

Original languageEnglish (US)
Title of host publicationNBER Macroeconomics Annual
PublisherUniversity of Chicago Press
Pages253-320
Number of pages68
Edition1
DOIs
StatePublished - 2022
Externally publishedYes

Publication series

NameNBER Macroeconomics Annual
Number1
Volume36
ISSN (Print)0889-3365
ISSN (Electronic)1537-2642

ASJC Scopus subject areas

  • Economics and Econometrics

Fingerprint

Dive into the research topics of 'Climate Change Uncertainty Spillover in the Macroeconomy'. Together they form a unique fingerprint.

Cite this