A climate–economy model in a stochastic differential equilibrium with fractional Brownian motions and Poisson jumps

Alastaire Alinsato, Kora Hafiz Bete () and Nassibou Bassongui ()
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Kora Hafiz Bete: University of Abomey-Calavi
Nassibou Bassongui: University of Abomey-Calavi

SN Business & Economics, 2023, vol. 3, issue 8, 1-23

Abstract: Abstract This paper introduces a new general equilibrium model involving climate change. More precisely, we used the theory of stochastic differential equations driven by fractional Brownian motion and the theory of jump processes to predict the climate–economy relationship. Through real data, we verified the new model’s effectiveness and accessed its prediction capacity through various simulations. The model provided good simulations of CO2 concentrations and other emissions, temperature dynamics and GDP. Besides, we found that climate change hurts global GDP around 2045 ceteris paribus. It proves to be more suitable for predicting the process in which memory reveals to be a relevant fact. Some policy implications are proposed to mitigate the anticipated impacts of the climate on the economy.

Keywords: Economic growth; Climate changes; Choleskii decomposition; Fractional Brownian motion; Poisson jumps (search for similar items in EconPapers)
JEL-codes: C02 C15 D50 Q54 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s43546-023-00512-6

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