Green asset pricing
Ghassane Benmir,
Ivan Jaccard and
Gauthier Vermandel
No 2477, Working Paper Series from European Central Bank
Abstract:
This paper demonstrates that empirically grounding the discount factor significantly influences the determination of the carbon price. Using two complementary nonlinear statistical approaches, we assess which utility formulations and corresponding stochastic discount factors best align with U.S. data. We provide evidence that habit formation is essential for capturing the time variation in the stochastic discount factor necessary to match the data. This increased time variation raises the carbon price by 32% and makes it five times more procyclical compared to standard models. The heightened procyclicality reduces aggregate risk, the risk premium, and the need for precautionary savings. JEL Classification: Q58, G12, E32
Keywords: climate change; equity premium puzzle; optimal policy; stochastic discount factor (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
Note: 737337
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Citations: View citations in EconPapers (5)
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Related works:
Working Paper: Green asset pricing (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20202477
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