A1060
Title: Effect of climate change on the Korean economy: Aggregated VAR with functional data
Authors: Boreum Kwak - Bank of Korea (Korea, South) [presenting]
Jihyun Kim - Sung Kyun Kwan University (Korea, South)
Abstract: The purpose is to examine the economic effects of climate change on South Korea within a broader global context, employing advanced econometric techniques to analyze high-dimensional functional data. Using an instrumental factor model, the global climate index is developed to capture global climate dynamics and localized seasonal weather indices for South Korea. These indices enable the decomposition of climate and weather impacts into global and local components. An aggregated VAR framework is applied to quantify the dynamic relationships between climate variables and economic indicators such as GDP and CPI in South Korea. Global temperature and economic shocks are identified to reveal how global temperature changes affect countries with different income levels and how these effects propagate to South Korea's economy. The findings demonstrate that global temperature shocks have significantly negative and permanent effects on GDP worldwide. In contrast, local weather variations in South Korea, while volatile, have minimal direct impacts on GDP and CPI in South Korea. These results underscore the importance of addressing global climate risks over localized weather fluctuations.
