Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/171922 
Year of Publication: 
2017
Series/Report no.: 
SAFE Working Paper No. 188
Publisher: 
Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe, Frankfurt a. M.
Abstract: 
We shed new light on the macroeconomic effects of rising temperatures. In the data, a shock to global temperature dampens expenditures in research and development (R&D). We rationalize this empirical evidence within a stochastic endogenous growth model, featuring temperature risk and growth sustained through innovations. In line with the novel evidence in the data, temperature shocks undermine economic growth via a drop in R&D. Moreover, in our endogenous growth setting temperature risk generates non-negligible welfare costs (i.e., 11% of lifetime utility). An active government, which is committed to a zero fiscal deficit policy, can offset the welfare costs of global temperature risk by subsidizing the aggregate capital investment with one-fifth of total public spending.
Subjects: 
Global Temperature
R&D
Welfare Costs
JEL: 
E30
G12
Q00
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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