On God and Climate Models
Scenario modelers tend to use fully specified structural models. But even if the form of a model was delivered from Above, it would likely be sub-optimal for forecasting.
Suppose God comes down from heaven and tells you the correct model specification to explain the performance of the portfolio you’re analyzing. Naturally, the specification includes a range of climate-related variables, a broad set of economic data, and a range of borrower characteristics.
But God, having a sense of humor, does not provide parameter values. You will have to estimate those from the data you have available to you. The specification is quite detailed but elegant enough that it can be estimated using techniques currently used by mere mortals.
Let's say your day job involves building models to construct climate scenarios. Should the specification provided by the Almighty be used for this purpose?