The Increasing Pace of Weather-Related Cost Shocks: Should Net Domestic Product be Affected by Climate Disasters?

The monetary costs of weather and climate disasters in the U.S. grew rapidly from 1980 to 2022, rising more than five percent in real terms annually, and implying a faster depreciation of real assets. We argue that the expected depreciation from these events could be included in consumption of fixed capital, leading to lower levels, and slightly slower growth rates, of Net Domestic Product. We use Poisson pseudo-maximum-likelihood regressions to estimate this expectation and generate our experimental measure of costs. An alternative calculation of depreciation and Net Domestic Product might be derived from the time series of costs incurred, rather than the far smoother expectation. This latter, realized series might be more appropriate for a national income satellite account. We also investigate the parametric distributions of annual average and total disaster-cost data.