Haroon Mumtaz , Queen Mary University Fulvia Marotta , University of Oxford
July 19, 2023
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Using a dynamic factor model with stochastic volatility, we examine the synchronization of temperature and precipitation changes across countries and regions. By doing so, we analyze the implications for the medium-term economic outlook and vulnerability to climate risks. Our findings reveal that a common factor explains a significant portion of temperature variance globally, with the largest contribution observed in sub-Saharan Africa, Latin America, and Asia. Additionally, the com-mon factor accounts for the increase in temperature levels across these regions. In contrast, precipitation fluctuations exhibit more localized patterns. We find that countries with higher GDP per-capita tend to have lower exposure to global temperature changes.
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Keywords:Climate change, Temperatures, Economic vulnerability, Dynamic factor model.