Transition Risk: Sources and Policy Responses

Stefano Carattini, Garth Heutel, Givi Melkadze and Inès Mourelon

No 33275, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Transition risk – the financial stability risk related with decarbonization – is a major source of concern. The literature has so far only studied transition risk caused by carbon tax shocks. This paper explores other potential sources of transition risk: two other policy sources – subsidies to abatement or to green producers – and two preference-based sources – a shock to consumer preferences and a shock to investor preferences. We develop an environmental dynamic stochastic general equilibrium model that includes a frictional financial sector, and we consider macroprudential policy responses to transition risks. These different shocks have different effects on the possibility of transition risk and lead to different macroprudential policy implications.

JEL-codes: E32 E60 G18 Q43 Q58 (search for similar items in EconPapers)
Date: 2024-12
New Economics Papers: this item is included in nep-dge, nep-ene and nep-env
Note: EEE EFG
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