Understanding Macro and Asset Price Dynamics During the Climate Transition

Michael Donadelli, Patrick Grüning () and Steffen Hitzemann ()
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Patrick Grüning: Bank of Lithuania, Vilnius University
Steffen Hitzemann: Rutgers Business School

No 18, Bank of Lithuania Discussion Paper Series from Bank of Lithuania

Abstract: This paper analyzes the transition to a low-carbon economy and its effects on macroeconomic quantities and asset prices. Empirically, we document that the relative valuation of fossil fuel firms has significantly declined with the rise of climate change risk awareness. We develop a macro asset pricing model for the climate transition that matches this empirical fact and allows us to characterize the dynamics of macroeconomic aggregates and asset prices during and after the transition. In particular, we analyze (i) firm valuation dynamics, (ii) climate policy risk premia, (iii) capital reallocation between sectors, and (iv) the behavior of oil prices.

Keywords: Climate change; Policy risk; General equilibrium; Risk premia; Oil market (search for similar items in EconPapers)
JEL-codes: E2 E3 G12 Q43 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2019-12-27
New Economics Papers: this item is included in nep-ene, nep-env, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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