Arbeitspapier
Transition risk uncertainty and robust optimal monetary policy
Climate change has become one of the most prominent concerns globally. In this paper, we study the transition risk of greenhouse gas emission reduction in structural environmental-macroeconomic DSGE models. First, we analyze the uncertainty in model prediction on the effect of unanticipated and pre-announced carbon price increases. Second, we conduct optimal model-robust policy in different settings. We find that reducing emissions by 40% causes 0.7% - 4% output loss with 2% on average. Pre-announcement of carbon prices affects the inflation dynamics significantly. The central bank should react slightly less to inflation and output growth during the transition risk. With optimal carbon price designs, it should react even less to inflation, and more to output growth.
- Language
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Englisch
- Bibliographic citation
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Series: IMFS Working Paper Series ; No. 187
- Classification
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Wirtschaft
Environmental Economics: Government Policy
Business Fluctuations; Cycles
Climate; Natural Disasters and Their Management; Global Warming
Bayesian Analysis: General
General Aggregative Models: Forecasting and Simulation: Models and Applications
Monetary Policy
- Subject
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Climate change
Environmental policy
Optimal policy
Transition risk
Model uncertainty
DSGE models
- Event
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Geistige Schöpfung
- (who)
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Dück, Alexander
Le, Anh H.
- Event
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Veröffentlichung
- (who)
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Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)
- (where)
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Frankfurt a. M.
- (when)
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2023
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Dück, Alexander
- Le, Anh H.
- Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)
Time of origin
- 2023
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