Sensitivity Analysis of an Integrated Climate-Economic Model

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 behavior, including multiple equilibria, runaway trajectories, and unbounded oscillations, it is crucial to determine their sensitivity 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.