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The Macroeconomic Impact of Global and Country-Specific Climate Risk

Author

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  • Joseph P. Byrne

    (University of Strathclyde)

  • Prince Asare Vitenu-Sackey

    (University of Strathclyde)

Abstract

This paper examines the impact of climate risk on macroeconomic activity for thirty countries using over a century of panel time series data. The key innovation of our paper is to use a factor stochastic volatility approach to decompose climate change into global and country-specific climate risk and to consider their distinct impact upon macroeconomic activity. To allow for country heterogeneity, we also differentiate the impact of climate risk upon advanced and emerging economies. While the existing literature has focused on country based climate risk shocks, our results suggest idiosyncratic or country-specific climate risk shocks are relatively unimportant. Global climate risk, on the other hand, has a negative and relatively more important impact on macroeconomic activity. In particular, we find that both advanced and emerging countries are adversely impacted by global climate risk shocks.

Suggested Citation

  • Joseph P. Byrne & Prince Asare Vitenu-Sackey, 2024. "The Macroeconomic Impact of Global and Country-Specific Climate Risk," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(3), pages 655-682, March.
    • Handle: RePEc:kap:enreec:v:87:y:2024:i:3:d:10.1007_s10640-023-00831-0
    DOI: 10.1007/s10640-023-00831-0
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    Cited by:

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    2. Mongelli, Francesco Paolo & Ceglar, Andrej & Scheid, Benedikt Alois, 2024. "Why do we need to strengthen climate adaptations? Scenarios and financial lines of defence," Working Paper Series 3005, European Central Bank.

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    More about this item

    Keywords

    Global climate risk; Factor stochastic volatility model; Macroeconomic activity; Bayesian panel VAR;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • 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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