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A Stock-Flow Consistent Monetary Macrodynamics of Glob



Coping with the Collapse:

A Stock-Flow Consistent Monetary

Macrodynamics of Global Warming


Pour citer ce papier : Giraud, G. , F. Mc ISAAC, E. BOVARI, E. ZATSEPINA (2016), “Coping with

the Collapse: A Stock-Flow Consistent Monetary Macrodynamics of

Global Warming”, AFD Research Papers, n° 2016-29, August.

Contact à l’AFD : Florent Mc ISAAC (

October 3, 2016


This paper presents a macroeconomic model of endogenous growth that enables

to take into consideration both the economic impact of climate change and the

pivotal role of private debt. Using a Goodwin-Keen approach [24], based on the

Lotka-Volterra logic, we couple its nonlinear dynamics of underemployment and

income distribution with abatement costs. Moreover, various damage functions `a

la Nordhaus ([37]) and Dietz-Stern ([6]) reflect the loss in final production due

to the temperature increase caused by the rising levels of CO2 emissions. An

empirical estimation of the model at the world-scale enables us to simulate plausible

trajectories for the planetary business-as-usual scenario. Our main finding is that,

even though the short-run impact of climate change on economic fundamentals

may seem prima facie rather minor, its long-run dynamic consequences may lead

to an extreme downside. Under plausible circumstances, global warming forces the

private sector to leverage in order to compensate for output losses; the private debt

overhang may eventually induce a global financial collapse, even before climate

change could cause serious damage to the production sector. Under more severe

conditions, the interplay between global warming and debt may lead to a secular

stagnation followed by a collapse in the second half of this century. We analyze

the extent to which slower demographic growth or higher carbon pricing allow a

global breakdown to be avoided. The paper concludes by examining the conditions

under which the +1.5 C target, adopted by the Paris Agreement (2015), could be


Keywords Climate change, endogenous growth, damage function, integrated assessment

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