Big news: Climate change and the business cycle

Alexander M. Dietrich, Gernot Müller and Raphael Schoenle

No 158, University of Tübingen Working Papers in Business and Economics from University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics

Abstract: News drive expectations about the economy's future fundamentals. Climate change is big news: it will impact the economy profoundly but the effect will take some time to materialize in full. Climate-change expectations thus offer a unique opportunity to study the impact of news on the business cycle. We measure these expectations in a representative survey of US consumers. Respondents expect not much of an impact on GDP growth, but perceive a high probability of costly, rare disasters-suggesting they are salient of climate change. Furthermore, expectations vary systematically with socioeconomic characteristics, media consumption, various information treatments and over time. We calibrate a New Keynesian model with rare disasters to key results of the survey and find that shifts in climate change expectations operate like demand shocks and cause sizeable business cycle fluctuations.

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: 2023
New Economics Papers: this item is included in nep-dge and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuewef:158

DOI: 10.15496/publikation-80003

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