Green preferences

Abstract

This paper studies how interaction between economic decision-making and environmental awareness affects US business cycle and GHG emissions in a two-sector DSGE model. We emphasize the mechanisms that relate carbon emissions dynamics, consumer behavior, and environmental awareness in a framework incorporating two classes of goods (i.e., “clean” and “dirty”). This paper offers three main results. First, green consumption preferences play a key role in emissions reduction when they internalize emissions concentrations. Second, a green preference shock is the second source of fluctuation in many sectoral variables and stabilizes the business cycle. Third, a pollutant supply shock leads to sustainable consumption procyclicality documented in US data, only if households are environmentally aware.

Beyond Green Preferences: Alternative Pathways to Net-Zero Emissions in the MATRIX Model

“…Indeed, the value for money of a green product is positively influenced by a pro-environmental attitude (Biswas and Roy, 2015), thus potentially generating additional revenues and profits for firms investing in less polluting techniques. Nevertheless, few works analyzed the effects (and feedback) at the aggregate level of such a change in consumers' behavior (Aghion et al, 2023;Konc et al, 2021;Busato et al, 2023).…”