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Climate change and the macro-economy: a critical review

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  • Batten, Sandra

    () (Bank of England)

Abstract

Climatic factors can directly affect economic outcomes such as output, investment and productivity, and understanding the economic consequences of climate change is becoming a necessity not just for climate economists but also for a wider range of economic professionals involved in modelling and forecasting macroeconomic variables. The focus of this review is on the key theoretical and empirical modelling issues in the analysis of the macroeconomic risks deriving from climate change. The paper develops the taxonomy introduced by a number of previous Bank of England studies, which distinguish between physical and transition risks of climate change. The paper then identifies the different channels through which these risks are transmitted to the macro-economy, either through (unpredictable) economic shocks or through predictable, longer-term impacts. The different approaches to modelling these macroeconomic effects are then discussed and assessed in light of the increasing need to routinely monitor and quantify the impact of emerging climate change risks on the economy.

Suggested Citation

  • Batten, Sandra, 2018. "Climate change and the macro-economy: a critical review," Bank of England working papers 706, Bank of England.
  • Handle: RePEc:boe:boeewp:0706
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    File URL: https://www.bankofengland.co.uk/working-paper/2018/climate-change-and-the-macro-economy-a-critical-review
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    Citations

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    Cited by:

    1. Lane, Philip R., 2019. "Climate Change and the Irish Financial System," Economic Letters 1/EL/19, Central Bank of Ireland.
    2. Yannis Dafermos & Maria Nikolaidi, 2019. "Fiscal policy and ecological sustainability: A post-Keynesian perspective," Working Papers PKWP1912, Post Keynesian Economics Society (PKES).
    3. Batten,, Sandra & Sowerbutts, Rhiannon & Tanaka, Misa, 2016. "Let’s talk about the weather: the impact of climate change on central banks," Bank of England working papers 603, Bank of England.

    More about this item

    Keywords

    Climate change; global warming; natural disasters; macroeconomic models;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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