Climate Disaster Risks - Empirics and a Multi-Phase Dynamic Model

48 Pages Posted: 7 Aug 2019

See all articles by Stefan Mittnik

Stefan Mittnik

University of Kiel - Institute of Statistics & Econometrics; Ludwig Maximilian University of Munich (LMU) - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Willi Semmler

The New School - Department of Economics; Universitaet Bielefeld; IIASA

Alexander Haider

The New School - Department of Economics

Date Written: July 2019

Abstract

Recent research in financial economics has shown that rare large disasters have the potential to disrupt financial sectors via the destruction of capital stocks and jumps in risk premia. These disruptions often entail negative feedback effects on the macroeconomy. Research on disaster risks has also actively been pursued in the macroeconomic models of climate change. Our paper uses insights from the former work to study disaster risks in the macroeconomics of climate change and to spell out policy needs. Empirically the link between carbon dioxide emission and the frequency of climate related disaster is investigated using cross-sectional and panel data. The modeling part then uses a multi-phase dynamic macro model to explore this causal nexus and the effects of rare large disasters resulting in capital losses and rising risk premia. Our proposed multi-phase dynamic model, incorporating climate-related disaster shocks and their aftermath as one phase, is suitable for studying mitigation and adaptation policies.

Keywords: Real sector, Economic growth, Interest costs, Interest rates on loans, Low income countries, climate economics, disaster risk, macro feedbacks, multi-phase macro model, monetary and financial policies, environmental economics, premia, large disaster, GHG, public capital

JEL Classification: C61, Q54, Q58, H5, E01, G21, E62, G12, E52

Suggested Citation

Mittnik, Stefan and Semmler, Willi and Haider, Alexander, Climate Disaster Risks - Empirics and a Multi-Phase Dynamic Model (July 2019). IMF Working Paper No. 19/145. Available at SSRN: https://ssrn.com/abstract=3433136

Stefan Mittnik (Contact Author)

University of Kiel - Institute of Statistics & Econometrics ( email )

Olshausenstr. 40
Kiel, Schleswig-Holstein 24118
Germany

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

Akademiestr.1/III
Munich, D-80539
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Willi Semmler

The New School - Department of Economics ( email )

65 Fifth Avenue
New York, NY 10003
United States

HOME PAGE: http://www.newschool.edu/nssr/faculty/?id=4e54-6b79-4e41-3d3d

Universitaet Bielefeld ( email )

Universit├Ątsstra├če 25
Bielefeld, NRW
Germany

IIASA ( email )

Schlossplatz 1
Laxenburg/Austria, A-2361
Austria

Alexander Haider

The New School - Department of Economics ( email )

Room 1116
6 East 16th Street
New York, NY 10003
United States

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