Abstract
This paper introduces a new general equilibrium model involving climate change. More precisely, we used the theory of stochastic differential equations driven by fractional Brownian motion and the theory of jump processes to predict the climate–economy relationship. Through real data, we verified the new model’s effectiveness and accessed its prediction capacity through various simulations. The model provided good simulations of CO2 concentrations and other emissions, temperature dynamics and GDP. Besides, we found that climate change hurts global GDP around 2045 ceteris paribus. It proves to be more suitable for predicting the process in which memory reveals to be a relevant fact. Some policy implications are proposed to mitigate the anticipated impacts of the climate on the economy.
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Generalities on the theory of stochastic differential equations, fractional Brownian motion, and the theory of jump processes are provided in ESM Appendix.
Organisation for Economic Co-operation and Development.
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All authors contributed to study conception and design. Material preparation, data, and analysis were performed by KHB, ASA, and NB. ASA wrote the first draft of the manuscript and KHB and NB commented on previous versions. All authors read and approved the final manuscript.
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Alinsato, A.S., Bete, K.H. & Bassongui, N. A climate–economy model in a stochastic differential equilibrium with fractional Brownian motions and Poisson jumps. SN Bus Econ 3, 139 (2023). https://doi.org/10.1007/s43546-023-00512-6
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DOI: https://doi.org/10.1007/s43546-023-00512-6