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Cross-Border Financial Effects of Global Warming In a Two-Area Ecological SFC Model

Emilio Carnevali, Matteo Deleidi (), Riccardo Pariboni () and Marco Veronese Passarella ()
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Emilio Carnevali: University of Leeds, Economics Division; and Department for Work and Pensions, UK Government.

UMASS Amherst Economics Working Papers from University of Massachusetts Amherst, Department of Economics

Abstract: We develop an ecological open-economy SFC model that enables testing cross-area interactions among productive sectors, financial markets and the ecosystem. We show that the unequal technical progress across areas, coupled with rising ecological awareness, can force governments of less ecologically efficient areas to move further away from low-carbon assets. We argue that ‘green’ monetary and fiscal policies can be used to tackle climate change and financial instability. However, their effectiveness depends crucially on the impact of cross-border financial flows and growth rate differentials on exchange rates. Without a cross-area policy coordination plan, currency fluctuations can bring about unintended consequences, undermining green policies’ effects.

Keywords: Stock-Flow Consistent Models; Climate Change; Financial Stability (search for similar items in EconPapers)
JEL-codes: D53 E44 F37 G17 Q54 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-bec, nep-env and nep-mac
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