Marcelo Ochoa

Federal Reserve Board
Division of Monetary Affairs
20th and C Streets, NW
Washington, DC 20551

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org

NBER Working Papers and Publications

December 2016Climate Change and Growth Risks
with Ravi Bansal, Dana Kiku: w23009
To study the welfare implications of rising temperature we propose a temperature-augmented long-run risks model that accounts for the interaction between temperature, economic growth and risk. The model simultaneously matches the projected temperature path, the observed consumption growth dynamics, discount rates provided by the risk-free rate and equity market returns, and the negative elasticity of equity prices to temperature risks documented in the data. We use the calibrated model to quantify the social cost of carbon (SCC) and to frame the optimal climate policy. We show that a preference for early resolution of uncertainty and long-run impact of temperature on growth imply a significant SCC and motivate early actions to abate global warming.
August 2016Price of Long-Run Temperature Shifts in Capital Markets
with Ravi Bansal, Dana Kiku: w22529
We use the forward-looking information from the US and global capital markets to estimate the economic impact of global warming, specifically, long-run temperature shifts. We find that global warming carries a positive risk premium that increases with the level of temperature and that has almost doubled over the last 80 years. Consistent with our model, virtually all US equity portfolios have negative exposure (beta) to long-run temperature fluctuations. The elasticity of equity prices to temperature risks across global markets is significantly negative and has been increasing in magnitude over time along with the rise in temperature. We use our empirical evidence to calibrate a long-run risks model with temperature-induced disasters in distant output growth to quantify the social cost of ...
November 2011Welfare Costs of Long-Run Temperature Shifts
with Ravi Bansal: w17574
This article makes a contribution towards understanding the impact of temperature fluctuations on the economy and financial markets. We present a long-run risks model with temperature related natural disasters. The model simultaneously matches observed temperature and consumption growth dynamics, and key features of financial markets data. We use this model to evaluate the role of temperature in determining asset prices, and to compute utility-based welfare costs as well as dollar costs of insuring against temperature fluctuations. We find that the temperature related utility-costs are about 0.78% of consumption, and the total dollar costs of completely insuring against temperature variation are 2.46% of world GDP. If we allow for temperature-triggered natural disasters to impact growth, i...
Temperature, Aggregate Risk, and Expected Returns
with Ravi Bansal: w17575
In this paper we show that temperature is an aggregate risk factor that adversely affects economic growth. Our argument is based on evidence from global capital markets which shows that the covariance between country equity returns and temperature (i.e., temperature betas) contains sharp information about the cross-country risk premium; countries closer to the Equator carry a positive temperature risk premium which decreases as one moves farther away from the Equator. The differences in temperature betas mirror exposures to aggregate growth rate risk, which we show is negatively impacted by temperature shocks. That is, portfolios with larger exposure to risk from aggregate growth also have larger temperature betas; hence, a larger risk premium. We further show that increases in global temp...
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