Conference Agenda
Overview and details of the sessions of this conference. Please select a date or location to show only sessions at that day or location. Please select a single session for detailed view (with abstracts and downloads if available).
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Daily Overview |
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Macroeconomics of the Climate Transition Location: D-105 Session Chair: Inès Mourelon, University of Bologna | |
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Transition Risk, Preference Shocks, and Climate Policy 1: University of Bologna; 2: Georgia State University, CEPR, and CESifo; 3: Georgia State University The financial stability risks associated with decarbonization are a growing concern for policymakers and financial institutions. This paper studies the macroeconomic consequences of transition risk in an environmental dynamic stochastic general equilibrium model with a frictional financial sector. We analyze three sources of transition risk: one policy-driven source of transition risk arising from an increase in carbon tax, and two preference-based sources: a shock to consumer preferences and a shock to investor preferences. For a given emissions reduction target, preference shocks generate larger macroeconomic and financial instability than a carbon tax while delaying environmental benefits. We further show that a tax-and-subsidy scheme on banks’ asset holdings mitigates these adverse effects and brings the economy closer to a first-best scenario, where environmental externalities and financial frictions are absent. Overall, carbon pricing and targeted financial sector policies play a central role in mitigating transition risks, ensuring a more stable adjustment path and leading to a long-run equilibrium with fewer distortions. | |