Climate Policy, Financial Frictions, and Transition Risk / Stefano Carattini, Garth Heutel, Givi Melkadze.

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Carattini, Stefano

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w28525.Publication details: Cambridge, Mass. National Bureau of Economic Research 2021.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We study climate and macroprudential policies in an economy with financial frictions. Using a dynamic stochastic general equilibrium model featuring both a pollution market failure and a market failure in the financial sector, we explore transition risk - whether ambitious climate policy can lead to macroeconomic instability. It can, but the risk can be alleviated through macroprudential policies - taxes or subsidies on banks' assets. Then, we explore efficient climate and macroprudential policy in the long run and over business cycles. The presence of financial frictions affects the steady-state value and dynamic properties of the efficient carbon tax. Macroprudential policy alone, without a carbon tax, is not very effective at addressing the pollution externality.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w28525 (Browse shelf(Opens below))	Not For Loan

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March 2021.

We study climate and macroprudential policies in an economy with financial frictions. Using a dynamic stochastic general equilibrium model featuring both a pollution market failure and a market failure in the financial sector, we explore transition risk - whether ambitious climate policy can lead to macroeconomic instability. It can, but the risk can be alleviated through macroprudential policies - taxes or subsidies on banks' assets. Then, we explore efficient climate and macroprudential policy in the long run and over business cycles. The presence of financial frictions affects the steady-state value and dynamic properties of the efficient carbon tax. Macroprudential policy alone, without a carbon tax, is not very effective at addressing the pollution externality.