Big news: Climate-disaster expectations and the business cycle

Alexander M. Dietrich, Gernot Müller and Raphael S. Schoenle

Journal of Economic Behavior & Organization, 2024, vol. 227, issue C

Abstract: News—anticipated changes of an economy’s fundamentals—drive the business cycle. Climate change is big news: it will impact the economy profoundly, but its full effect will take time to materialize. To better understand the transmission of news, this paper focuses on climate-change expectations. First, we measure the expected economic impact of climate change in a representative survey of U.S. consumers. We find, in particular, that costly natural disasters are salient of climate change. Second, we calibrate a New Keynesian model with rare disasters to the survey results and find that shifts in climate-change expectations operate like adverse demand shocks.

Keywords: Climate change; Disasters; Expectations; Survey; Monetary policy; Business cycle; Natural rate of interest (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:227:y:2024:i:c:s0167268124003330

DOI: 10.1016/j.jebo.2024.106719

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