| Frequent extreme weather events in recent years have exacerbated the uncertainty of China’s economy,and the increase of extreme events such as drought,extreme rainstorm,heat wave and cold wave have caused serious losses to human health and economic development.From 2008 to 2018,300 million people in China were affected by climate disasters every year,with an annual direct economic loss of 343.5 billion yuan.However,the indirect loss and cost of climate disasters are much higher than this.The frequency and emphasis of these extreme climate events are on the rise,and the impact of climate change has become an important source of macroeconomic fluctuations in China.However,climate change-related shocks are often not included in China’s macroeconomic modelling.Agricultural production activities,on the other hand,rely on natural conditions such as land,air temperature,rainfall,sunshine and become the most vulnerable in the face of climate change,but the overall effect of climate change brings to the Chinese agriculture were yet to be assessed,at the same time,we don’t know how climate impact in the department of agriculture effect will be conductive to other sectors of the economy,Will climate change cause macroeconomic fluctuations? Should the macro effects of climate shocks be taken into account when countries formulate and implement climate change policies in the future?To answer this question,this thesis provides a quantitative framework to describe the macro effects of climate shocks in China,focusing on the impacts of climate shocks on China’s agriculture and how the negative impacts of the agricultural sector are transmitted to the overall economy and cause macroeconomic fluctuations.Specifically,through the establishment of a dynamic stochastic general equilibrium（DSGE）model embedded in climate shocks,representative households,representative firms,foreign economic departments and government departments are the main components of the model.Based on China’s macroeconomic data and weather data from the first quarter of 1992 to the fourth quarter of 2019,this thesis uses Bayesian metrology to estimate and assign important parameters of the model.The impulse response path of variables to climate shocks and other exogenous shocks reflects the transmission mechanism between sectors.We study the impact of climate shocks and other exogenous shocks on China’s macroeconomic fluctuations,and analyze the explanatory power of various shocks on China’s economic fluctuations through variance decomposition.The conclusions of this thesis are as follows.First,we found that climate change shocks can explain 4.94% of China’s economic fluctuations,which is an important source of China’s economic fluctuations,ranking fourth among all exogenous shocks.Specific terms,the impact of climate change impact is through the department of agriculture to whole sectors of the economy and lead to macroeconomic volatility,when an adverse impact on climate change to reduce land productivity,due to the livestock and the crops need time to recover,agricultural production will be in a very long period of time at a lower level,fluctuation of agricultural production is an important driving factor.As a result,the contraction of agricultural production and investment increases the cost of land and agricultural working hours,thus causing economic recession.Climate shock leads to a maximum decrease of about 2% in agricultural output,and can explain 52.95% of agricultural output fluctuations.The economic fluctuations of agricultural sector will be transmitted to other economic sectors,resulting in varying degrees of decline in GDP,consumption and investment.On the other hand,land is one of the key inputs of agricultural production activities,and the marginal cost of land is positively correlated with the degree of drought.Therefore,land expenditure increases,which indirectly leads to the decline of GDP.In the model,climate shock reduces land production efficiency by up to 9%.In order to maintain output,farmers need to increase labor time input and capital input.Second,technological shock can explain 44.98% of the actual output fluctuation,which is close to half of the overall economic fluctuation,and is the main source to explain China’s economic fluctuation,which is consistent with the research results of most scholars at home and abroad.The fluctuation of actual agricultural output is mainly caused by climate shock,while the economic fluctuation caused by climate change increases gradually with the passage of time,which corresponds to the increasing trend of the persistence of climate change and the risks brought by climate change.In the labor market,labor allows inter-departmental flow coefficient of elasticity of substitution and labor constraints,when Labor can interdepartmental flow,low cost labor supply to pay higher production department,under the action of impact of climate change,part of the household sector labor flow to non-agricultural production department by the agricultural production,ultimately increasing the agriculture department’s working hours.At the same time,climate change leads to the distortion of the relative prices between sectors.The decrease of agricultural sector output and the increase of non-agricultural sector output change the price level of the product market.In the short term,the price of agricultural products rises while the price of non-agricultural products declines.This in turn affects the supply of agricultural and non-agricultural products.Therefore,this thesis makes the following policy recommendations.First,it is suggested that green development be set as the fifth macroeconomic goal of China,together with price remains stable,full employment and balance of payments as the goals of development,management and regulation of our macroeconomy.There is an urgent need to speed up the legislative process of addressing climate change,confirm the total carbon emission control system in legal form,reflect the legal status of addressing climate change in the process of revising existing laws and regulations,and strengthen the concept of low-carbon development.According to the actual situation,carbon trading and carbon tax should be used simultaneously to establish a coordination mechanism between the two carbon emission reduction policies,so as to cope with climate change,promote green and low-carbon development and build ecological civilization.Second,improve the ability to analyze climate risks and use financial and monetary policy tools to mitigate the effects of climate change.Gradually establish a comprehensive climate and environmental risk management system,learn to adopt the international mainstream climate information disclosure framework,and strengthen climate-related information disclosure.New approaches to climate finance research should be actively explored.Central banks and financial regulators should design and implement climate stress tests,comprehensively assess and monitor China’s financial system through climate stress tests,and formulate relevant policies based on the test results.Given the randomness and persistence of climate change impacts,climate change toolkits and policy frameworks need to be further developed to enable policymakers and financial institutions to implement credible,sustainable and effective climate policies. |
