Macroeconomics of Climate Change

The macroeconomics of climate change analyzes the reciprocal relationship between the climate system and the economy at an aggregate level. This field investigates how climate change impacts key macroeconomic variables like GDP, inflation, employment, and financial stability through both physical risks (e.g., damage from extreme weather) and transition risks (e.g., economic shifts from decarbonization). Conversely, it also examines how macroeconomic policy tools—such as fiscal measures like carbon taxes and green infrastructure spending, and monetary policies that account for climate-related financial risk—can be used to mitigate climate change, facilitate adaptation, and foster sustainable long-term economic growth.