Minimal modelling of non-equilibrium dynamics in coupled climate–economy systems

Climate science depends on hierarchies of models to understand and to predict climatic variability across spatiotemporal scales. Similarly, macroeconomics after the 2008 financial crisis increasingly employs a plurality of models with distinct aims. Both disciplines often rest on linearity assumptions to model the evolution of averaged quantities over the long-term. Current Integrated Assessment Models (IAMs), however, rely almost exclusively on the latter models, for both the economic and climatic systems. Yet, nonequilibrium and short-term dynamics shape both the risks of climate change and the strategies for their management in the long-term. Neglected interactive climate–economy phenomena – specifically the volatility of commodity prices – are likewise crucial for the stability and growth of developing countries.

We therefore present a minimal data-driven coupled model of the El Niño-Southern Oscillation and the macroeconomy. Crucially, the non-equilibrium economic model reveals a tradeoff between structural stability and resilience: economic management that dampens the amplitude of endogenous fluctuations increases the economy's sensitivity to exogenous shocks. The coupled model reproduces the multiscale oscillatory variability that is observed in the prices of several tropical commodities. These results demonstrate the importance of IAMs that accurately represent the full spectrum of time scales in both the economic and climatic systems for the effective management and understanding of commodity price variability and, more generally, of climate risks.