Schumpeterian disaggregation and integrated assessment: An endogenous, stock-flow consistent economy in disequilibrium for FRIDA v2.1

Integrated assessments of climate change require models capable of capturing the coupled dynamics of natural and socioeconomic systems. This paper presents the economy module of FRIDA v2.1, a Schumpeterian, disequilibrium framework of endogenous growth designed to address several limitations of contemporary integrated assessment models (IAMs). The module incorporates monetary, financial and innovation dynamics driving productivity and endogenous business cycles, while allowing explicit representation of how climate impacts propagate through various institutional sectors and economic processes. Its process-based structure replaces aggregated damage functions with disaggregated, empirically grounded mechanisms, improving the traceability of assumptions and enabling the study of climate-finance interactions – including risks of disorderly transitions – absent from mainstream IAMs. Calibration against historical data demonstrates that the model produces dynamics broadly consistent with observed macroeconomic developments over the period 1980–2023. A 100 000-member ensemble simulation communicates the uncertainty in projections through 2150 while revealing endogenous constraints on economic activity. We show that without further action to combat climate change, expected climate impacts not only affect economic production, primarily through reduced investment growth and financial fragility, but also government budgets which come under stress owing to the increasing burdens of unemployment and demographic change. By providing a transparent, modifiable platform for simulating monetary, financial, and innovation dynamics under climate constraints, FRIDA v2.1 expands the analytical scope of IAMs and supports richer exploration of transition pathways.