A1491
Title: The real effects of climate volatility shocks
Authors: Sofia Sanchez Alegre - University Carlos III of Madrid (Spain) [presenting]
Hernan Seoane - Universidad Carlos III de Madrid (Spain)
Abstract: The real economic effects of volatility shocks related to climate change are quantified. A dynamic stochastic general-equilibrium (DSGE) closed-economy real business cycle model is developed incorporating energy consumption and the negative productivity impacts of atmospheric CO2 accumulation. The model is extended to account for the time-varying volatility of CO2 accumulation's effects on the Solow residual. The model is calibrated to match the U.S. business cycle, together with energy consumption and the evolution of the carbon stock in the atmosphere. Findings indicate that volatility shocks have significant real effects, even in the absence of changes in atmospheric CO2 concentration, as they increase the risk of climate-related economic damage. Furthermore, the effects are magnified when climate change accelerates capital depreciation.
