Green Ambiguity

Marco Carli

No 591, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: Agents may be unsure about the productive potential of green technology and of the non-polluting sector due to imprecise information or misguiding news. I study the impact of this deep uncertainty in the context of the transition to a low-carbon economy in a dynamic stochastic general equilibrium model with polluting and green sectors and agents who, due to their ambiguity aversion, take decisions under pessimistic expectations about the future productivity of the latter sector. In the short term, losses of confidence can shift the balance of the economy in favor of investment in the polluting sector and lead to an increase in emissions. Coupling environmental tax and green subsidy can partially counteract this imbalance when the long-run forecast of agents ends up realizing, while also avoiding delays in the green transition. A dynamic version of the policy mix is also able to mitigate the short-term effects of drops in confidence.

Keywords: Business Cycle; Ambiguity; E-DSGE (search for similar items in EconPapers)
JEL-codes: E32 Q55 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2025-02-05, Revised 2025-02-05
New Economics Papers: this item is included in nep-dge, nep-ene and nep-env
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