We develop new econometric models and apply them to study the interconnections between climate and economic activity. By making use of non-normality in economic and weather time series, we statistically identify structural shocks, and by tracing out their dynamic impact, examine the causal effects of the weather on the economy. Dependence of these effects on economic conditions and their evolution over time, in turn, yield information on the effects of climate change. Our models also facilitate the assessment of the impact of policy designed to abate the adverse effects of climate change. We extend previously introduced econometric models in various directions. By allowing for time-varying parameters, we examine how the economic effects of the weather have changed over time, and by introducing conditional volatility of the shocks, we account for uncertainty concerning the climate change. We also entertain models with anticipated shocks to check for the importance of expectations.

2022

2026