Working Paper: NBER ID: w23549
Authors: Derek Lemoine
Abstract: A rapidly growing empirical literature seeks to estimate the costs of future climate change from time series variation in weather. I formally analyze the consequences of a change in climate for economic outcomes. I show that those consequences are driven by changes in the distribution of realized weather and by expectations channels that capture how anticipated changes in the distribution of weather affect current and past investments. Studies that rely on time series variation in weather omit the expectations channels. Quantifying the expectations channels requires estimating how forecasts affect outcome variables and simulating how climate change would alter forecasts.
Keywords: Climate Change; Economic Impacts; Expectations; Weather Variability
JEL Codes: D84; H43; Q12; Q51; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| climate change (Q54) | economic outcomes (F61) |
| direct weather channels (R19) | economic variables (P42) |
| expectations channels (D84) | investment decisions (G11) |
| altered expectations about future weather (D84) | changes in durable investments (E20) |
| expectations channels (D84) | adaptation before weather shocks (Q54) |
| traditional methods (C90) | underestimation of economic impacts of climate change (Q54) |