Climate risk and the natural interest rate: An E-DSGE perspective

Paul Levine () and Victor Pontines

Economics Letters, 2024, vol. 238, issue C

Abstract: We examine the effect of climate-induced temporary extreme weather events on the natural real interest rate by incorporating environmental aspects into a Keynesian growth model. We find that environmental damage accentuates the reduction in the natural real interest rate caused by climate-induced temporary supply disruptions, and this effect is even more pronounced when the estimate of the current stock of carbon dioxide in the atmosphere doubles.

Keywords: Environmental damage; Carbon dioxide; Keynesian growth; Natural interest rate; Damage function (search for similar items in EconPapers)
JEL-codes: E22 E32 G10 O42 O44 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:238:y:2024:i:c:s0165176524002027

DOI: 10.1016/j.econlet.2024.111719

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