Climate Change and the Macro Economy

Abstract

Disclaimer: This paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB.

To Be or Not to Be “Green”: How Can Monetary Policy React to Climate Change?

“…Extreme weather events can also cause knock-on effects on demand, generating demand shocks on top of the supply shocks mentioned above. For example, extreme weather events may increase uncertainty, creating a drag on investment (see Andersson et al, 2020). Uncertainty may be exacerbated by a government's inability to commit to its climate policies beyond the next electoral cycle.…”

Demand or Supply? An Empirical Exploration of the Effects of Climate Change on the Macroeconomy

“…All of them could have an impact on the demand and supply mix that affects prices. As well, the roll out of new green technologies would encompass significant government expenditure, investment and innovation that could results in changes in relative prices, having a wide-ranging economic impacts (see Andersson et al (2020) for a review).…”

“…That said, there is an increasing number of reports and reviews that are key to understand the taxonomy and the potential channels of climate change. In most of these reports conclusions have either been based on standard macroeconomic considerations (e.g., Andersson et al (2020), Batten et al (2020)), or on model-based simulations (e.g. NGFS (2020a), IMF ( 2020)).…”

Determinants of Greenhouse Gas Emissions

“…In other words, CO2 emissions are highly procyclical. In real terms, climate risk accelerates business cycle fluctuation through total factor productivity (Alam et al, 2016;Andersson et al, 2020;Bekhet et al, 2017;Nordhaus, 2017). Andersson et al (2020) using the new area-wide model (NAWM) found that climate risks complicate the correct identification of shocks.…”

“…In real terms, climate risk accelerates business cycle fluctuation through total factor productivity (Alam et al, 2016;Andersson et al, 2020;Bekhet et al, 2017;Nordhaus, 2017). Andersson et al (2020) using the new area-wide model (NAWM) found that climate risks complicate the correct identification of shocks. Given, the staggering linkage between GHG emissions and business cycle, this paper observed that the global economy contracted by a staggering 4.3% (estimated) in 2020 (UNCTAD, 2020).…”