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Stephie Fried

Senior Economist
Sustainable Growth Research
Climate change, Economic growth, Macroeconomics

stephie.fried (at) sf.frb.org

Profiles: Personal website

Working Papers
Understanding Climate Damages: Consumption versus Investment

2022-21 | with Casey and Gibson | October 2022


Existing climate-economy models use aggregate damage functions to model the effects of climate change. This approach assumes climate change has equal impacts on the productivity of firms that produce consumption and investment goods or services. We show the split between damage to consumption and investment productivity matters for the dynamic consequences of climate change. Drawing on the structural transformation literature, we develop a framework that incorporates heterogeneous climate damages. When investment is more vulnerable to climate, we find short-run consumption losses will be smaller than leading models with aggregate damage functions suggest, but long-run consumption losses will be larger. We quantify these effects for the climate damage from heat stress and find that accounting for heterogeneous damages increases the welfare cost of climate change by approximately 4 to 24 percent, depending on the discount factor.

Published Articles (Refereed Journals and Volumes)
Electricity and Firm Productivity: A General-Equilibrium Approach

American Economic Journal: Macroeconomics 15(4), October 2023, 67-103 | with Lagakos


Many policymakers view power outages as a major constraint on firm productivity in developing countries. Yet empirical studies find modest short-run effects of outages on firm performance. This paper builds a dynamic macroeconomic model to study the long-run general-equilibrium effects of power outages on productivity. Outages lower productivity in the model by creating idle resources, depressing the scale of incumbent firms and reducing entry of new firms. Consistent with the empirical literature, the model predicts small short-run effects of eliminating outages. However, the long-run general-equilibrium effects are much larger, supporting the view that eliminating outages is an important development objective.

Projecting the Impacts of Rising Temperatures: The Role of Macroeconomic Dynamics

IMF Economic Review Online first article, June 2023 | with Casey and Goode


We use theory and empirics to distinguish between the impact of temperature on transition (temporary) and steady state (permanent) growth in output per capita. Standard economic theory suggests that the long-run growth rate of output per capita is determined entirely by the growth rate of total factor productivity (TFP). We find evidence suggesting that the level of temperature affects the level of TFP, but not the growth rate of TFP. This implies that a change in temperature will have a temporary, but not a permanent, impact on output per capita growth. To highlight the quantitative importance of distinguishing between permanent and temporary changes in economic growth, we use our empirical estimates and theoretical framework to project the impacts of future increases in temperature caused by climate change. We find losses that are substantial, but smaller than those in the existing empirical literature that assumes a change in temperature permanently affects economic growth.

Seawalls and Stilts: A Quantitative Macro Study of Climate Adaptation

Review of Economic Studies 89(6), November 2022, 3,303-3,344


Can we reduce the damage from climate change by investing in seawalls, stilts, or other forms of adaptation? Focusing on the case of severe storms in the US, I develop a macro heterogeneous-agent model to quantify the interactions between adaptation, federal disaster policy, and climate change. The model departs from the standard climate damage function and incorporates the damage from storms as the realization of idiosyncratic shocks. I find that while the moral hazard effects from disaster aid reduce adaptation in the US economy, federal subsidies for investment in adaptation more than correct for the moral hazard. I introduce climate change into the model as a permanent increase in either or both the severity or probability of storms. Adaptation reduces the damage from this climate change by approximately one third. Finally, I show that modeling the idiosyncratic risk component of climate damage has quantitatively important implications for adaptation and for the welfare cost of climate change.

Climate Policy Transition Risk and the Macroeconomy

European Economic Review 147(104174), August 2022 | with Novan and Peterman


Uncertainty surrounding if the U.S. will implement a federal climate policy introduces risk into the decision to invest in long-lived capital assets, particularly those designed to use, or to replace fossil fuel. We develop a dynamic, general equilibrium model to quantify the macroeconomic impacts of this climate policy transition risk. The model incorporates beliefs over the likelihood that the government adopts a climate policy causing the economy to dynamically transition to a lower carbon steady state. We find that climate policy transition risk decreases carbon emissions today by causing investment to become relatively cleaner and output to fall. This result counters the Green Paradox, which argues that climate policy risk raises emissions today by increasing incentives to extract fossil fuel, expanding its supply. Even allowing for the supply-side response, we find the demand-side response dominates, and the net effect of climate policy transition risk is still to reduce emissions today.

Rural Electrification, Migration and Structural Transformation: Evidence From Ethiopia

Regional Science and Urban Economics 91(103625), November 2021 | with Lagakos


To what extent does rural electrification induce structural change and alter migration patterns? This paper addresses this question using a simple multisector spatial model and evidence from a panel of rural Ethiopian villages during its recent expansion of electricity supply. We find that electrification raised irrigation rates, agricultural yields and non-agricultural business activity. Furthermore, electrified villages experienced higher rates of in-migration and lower rates of out-migration. Each of these predictions is qualitatively consistent with the predictions of our model. Our results suggest that rural electrification helped facilitate structural transformation of villages economies in Ethiopia and slowed out-migration from rural areas.

The Fed – The Green Dividend Dilemma: Carbon Dividends Versus Double Dividends

FEDS Notes, March 2019 | with Novan and Peterman

The Distributional Effects of a Carbon Tax on Current and Future Generations

Review of Economic Dynamics 30, October 2018, 30-46 | with Novan and Peterman

Stuck in a Corner? Climate Policy in Developing Countries

Macroeconomic Dynamics 22(6), September 2018, 1535-1554

Climate Policy and Innovation: A Quantative Macroeconomic Analysis

American Economic Journal: Macroeconomics 10(1), January 2018, 90-118

FRBSF Publications