Understanding Macro and Asset Price Dynamics During the Climate Transition
Michael Donadelli (),
Patrick Grüning and
Steffen Hitzemann ()
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Michael Donadelli: University of Brescia, Research Center SAFE
Steffen Hitzemann: Rutgers Business School
No 18, Bank of Lithuania Discussion Paper Series from Bank of Lithuania
This paper analyzes the transition to a low-carbon economy and its effects on macroeconomic quantities and asset prices. Empirically, we document that the relative valuation of fossil fuel firms has significantly declined with the rise of climate change risk awareness. We develop a macro asset pricing model for the climate transition that matches this empirical fact and allows us to characterize the dynamics of macroeconomic aggregates and asset prices during and after the transition. In particular, we analyze (i) firm valuation dynamics, (ii) climate policy risk premia, (iii) capital reallocation between sectors, and (iv) the behavior of oil prices.
Keywords: Climate change; Policy risk; General equilibrium; Risk premia; Oil market (search for similar items in EconPapers)
JEL-codes: E2 E3 G12 Q43 (search for similar items in EconPapers)
Pages: 62 pages
New Economics Papers: this item is included in nep-ene, nep-env, nep-mac and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:lie:dpaper:18
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