Insights Blog

IMF Working Paper: How Climate Disasters Affect Capital

July 22, 2019

Economist Willi Semmler, director of SCEPA’s Economics of Climate Change project, co-authored an IMF Working Paper modeling how climate disasters affect population segments, infrastructure, housing, and private capital, possibly leading to poverty traps.

Titled, “Climate Disaster Risks – Empirics and a Multi-Phase Dynamic Model,” the paper proposes a model to help policy makers determine the economic effects of climate change and adaption policies.

Recent research in financial economics shows that large disasters can disrupt the financial sector and lead to losses of employment, income, and capital and jumps in risk premia, negatively affecting the economy as a whole. The IMF paper follows the lead of a former New School Professor Emil Gumbel and his work on the statistics of extremes. It explores the link between carbon dioxide emission and greater frequency of climate-related disasters. It also looks at the effects of rare large disasters on income and capital losses, rising risk premia and credit costs, decline of economic activity, migration and poverty traps.

The paper’s co-authors include SCEPA’s Willi Semmler, Arnhold Professor of International Cooperation and Development at The New School for Social Research; Stefan Mittnik, Economics Professor and Chair of Financial Econometrics at Ludwig Maximilians University of Munich; and Alexander Haider, PhD student in economics at The New School for Social Research.