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Econometric modelling of climate systems: The equivalence of energy balance models and cointegrated vector autoregressions

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  • Pretis, Felix
Abstract
Estimates of both the human impact on climate as well as the economic impacts of climate change are crucial to inform policy decisions. Econometric modelling allows us to quantify these impacts and their uncertainties, but models have to be consistent with the underlying physics and the time series properties of the data. Here I show that energy-balance models of climate are equivalent to an econometric cointegrated system and can be estimated in discrete time. This equivalence provides a basis for the use of cointegration methods to estimate climate responses and test their feedback. Further, it is possible to use the estimated parameters to quantify uncertainties in integrated assessment models of the economic impacts of climate change. In an application I estimate a system of temperatures, ocean heat content, and radiative forcing including greenhouse gases, and find statistical support for the cointegrated energy balance model. Accounting for structural breaks from volcanic eruptions highlights large parameter uncertainties and shows that previous empirical estimates of the temperature response to increased CO2 concentrations may be misleadingly low due to model-misspecification.

Suggested Citation

  • Pretis, Felix, 2020. "Econometric modelling of climate systems: The equivalence of energy balance models and cointegrated vector autoregressions," Journal of Econometrics, Elsevier, vol. 214(1), pages 256-273.
    • Handle: RePEc:eee:econom:v:214:y:2020:i:1:p:256-273
    DOI: 10.1016/j.jeconom.2019.05.013
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    More about this item

    Keywords

    Cointegration; Vector autoregression; Climate; Energy balance; Indicator saturation;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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