Climate Disaster Risks—Empirics and a Multi-Phase Dynamic Model

Abstract

Recent research in financial economics has shown that rare large disasters have the potential to disrupt financial sectors via the destruction of capital stocks and jumps in risk premia. These disruptions often entail negative feedback effects on the macroeconomy. Research on disaster risks has also actively been pursued in the macroeconomic models of climate change. Our paper uses insights from the former work to study disaster risks in the macroeconomics of climate change and to spell out policy needs. Empirically, the link between carbon dioxide emission and the frequency of climate related disaster is investigated using a panel data approach. The modeling part then uses a multi-phase dynamic macro model to explore the effects of rare large disasters resulting in capital losses and rising risk premia. Our proposed multi-phase dynamic model, incorporating climate-related disaster shocks and their aftermath as a distressed phase, is suitable for studying mitigation and adaptation policies as well as recovery policies.

Resilience and Complex Dynamics — Safeguarding Local Stability Against Global Instability

“…On the same line, existing work shows that the complex dynamics can generate steady states as a trapping region, as bad attractors, where the dynamics nearby can be trapped in a low-level equilibrium with features of a persistent trap, see Mittnik et al (2020), Kovacevic and Semmler (2021), Orlando (2022). They provide examples of this type arising for instances from severe climate disasters with disruptive contractions.…”

Climate Financing: Concept, Issues and Mitigation Strategies A Literary Review

“…As a parting recommendation, they propose a few exciting avenues for future study in the field of climate financing. The potential risks of disaster in economics models of climate change are explored by Mittnik, Stefan, Willi Semmler, and Alexander Haider (2020), who also highlight the importance of intervention. The relationship between carbon dioxide emissions and the frequency of climaterelated disasters is investigated using a panel data technique.…”