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"This article makes a contribution towards understanding the impact of temperature fluctuations on the economy and financial markets. We present a long-run risks model with temperature related natural disasters. The model simultaneously matches observed temperature and consumption growth dynamics, and key features of financial markets data. We use this model to evaluate the role of temperature in determining asset prices, and to compute utility-based welfare costs as well as dollar costs of insuring against temperature fluctuations. We find that the temperature related utility-costs are about 0.78% of consumption, and the total dollar costs of completely insuring against temperature variation are 2.46% of world GDP. If we allow for temperature-triggered natural disasters to impact growth, insuring against temperature variation raise to 5.47% of world GDP. We show that the same features, long-run risks and recursive-preferences, that account for the risk-free rate and the equity premium puzzles also imply that temperature-related economic costs are important. Our model implies thata rise in global temperature lowers equity valuations and raises risk premiums"--National Bureau of Economic Research web site.
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Welfare costs of long-run temperature shifts
2011, National Bureau of Economic Research
Electronic resource
in English
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Title from PDF file as viewed on 1/12/2012.
Includes bibliographical references.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.
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- Created January 18, 2012
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October 17, 2020 | Edited by MARC Bot | import existing book |
July 29, 2012 | Edited by VacuumBot | Updated format '[electronic resource] /' to 'Electronic resource' |
January 18, 2012 | Created by LC Bot | Imported from Library of Congress MARC record |