Sensitivity analysis of an integrated climate-economic model

TL;DR

This paper performs a sensitivity analysis on a novel integrated climate-economic model that uses Goodwin-Keen dynamics, examining how various economic and climate parameters influence model outcomes.

Contribution

It introduces a method to quantify parameter sensitivities in complex climate-economic models with multiple equilibria and oscillations.

Findings

Economic parameters significantly affect model trajectories.

Climate parameters influence long-term climate stability.

Sensitivity measures can be applied to models with many parameters.

Abstract

We conduct a sensitivity analysis of a new type of integrated climate-economic model recently proposed in the literature, where the core economic component is based on the Goodwin-Keen dynamics instead of a neoclassical growth model. Because these models can exhibit much richer behaviour, including multiple equilibria, runaway trajectories and unbounded oscillations, it is crucial to determine how sensitive they are to changes in underlying parameters. We focus on four economic parameters (markup rate, speed of price adjustments, coefficient of money illusion, growth rate of productivity) and two climate parameters (size of upper ocean reservoir, equilibrium climate sensitivity) and show how their relative effects on the outcomes of the model can be quantified by methods that can be applied to an arbitrary number of parameters.