Projecting the Impact of Rising Temperatures: The Role of Macroeconomic Dynamics

Gregory Casey, Stephie Fried and Ethan Goode

No 2022-20, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: We use theory and empirics to distinguish between the impact of temperature on transition (temporary) and steady state (permanent) growth in output per capita. Standard economic theory suggests that the long-run growth rate of output per capita is determined entirely by the growth rate of total factor productivity (TFP). We find evidence suggesting that the level of temperature affects the level of TFP, but not the growth rate of TFP. This implies that a change in temperature will have a temporary, but not a permanent, impact on growth in output per capita. To highlight the quantitative importance of distinguishing between permanent and temporary changes in economic growth, we use our empirical estimates and theoretical framework to project the impacts of future increases in temperature from climate change. We find losses that are substantial, but smaller than those in the existing empirical literature that assumes a change in temperature permanently affects economic growth.

Keywords: temperature; climate; macroeconomics; growth rates (search for similar items in EconPapers)
Pages: 57
Date: 2022-08-18
New Economics Papers: this item is included in nep-env and nep-gro
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Related works:
Journal Article: Projecting the Impact of Rising Temperatures: The Role of Macroeconomic Dynamics (2023)
Working Paper: Projecting the Impact of Rising Temperatures: The Role of Macroeconomic Dynamics (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:94889

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DOI: 10.24148/wp2022-20

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