How to Include the Effects of Rising Temperatures in Long-Term GDP Projections

Climate change threatens macroeconomic and financial stability through rising temperatures, shifting precipitation patterns, sea level rise, and more frequent and intense extreme weather, in addition to other factors. To better assess vulnerabilities and future risks, climate change effects should be integrated in long-term macroeconomic projections. This note shows how to include the effect of rising temperatures into long-term GDP projections using a three-step method: (1) estimating macroeconomic effects of rising temperatures from historical data, (2) building temperature change scenarios from climate model simulations, and (3) integrating impacts into long-term GDP projections. The methodology addresses key empirical challenges and can be leveraged to assess the effects of temperature increases on fiscal variables, including public debt. Impact assessments for 171 countries are available in an online Data Appendix.