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The Expectations Channel of Climate Change: Implications for Monetary Policy

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  • Schoenle, Raphael
  • Dietrich, Alexander
  • Müller, Gernot

Abstract

We measure expectations about the short-run economic impact of climate change 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 to key results of the survey and spell out two implications for monetary policy. First, climate-change related disaster expectations lower the natural rate of interest substantially. Second, time-variation in disaster expectations contributes to cyclical fluctuations.

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  • Schoenle, Raphael & Dietrich, Alexander & Müller, Gernot, 2022. "The Expectations Channel of Climate Change: Implications for Monetary Policy," CEPR Discussion Papers 15866, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15866
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    Cited by:

    1. Annicciarico, Barbara & Di Dio, Fabio & Dilusio, Francesca, 2022. "Climate Actions, Market Beliefs, and Monetary Policy," Working Papers 2022-14, Joint Research Centre, European Commission.
    2. Ferrari Minesso, Massimo & Pagliari, Maria Sole, 2023. "No country is an island. International cooperation and climate change," Journal of International Economics, Elsevier, vol. 145(C).
    3. William Ginn, 2022. "Climate Disasters and the Macroeconomy: Does State-Dependence Matter? Evidence for the US," Economics of Disasters and Climate Change, Springer, vol. 6(1), pages 141-161, March.
    4. Patrick Gruning, 2022. "Fiscal, Environmental, and Bank Regulation Policies in a Small Open Economy for the Green Transition," Working Papers 2022/06, Latvijas Banka.
    5. Alessandro Cantelmo, 2022. "Rare Disasters, the Natural Interest Rate and Monetary Policy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(3), pages 473-496, June.
    6. Hélène Benveniste & Michael Oppenheimer & Marc Fleurbaey, 2022. "Climate change increases resource-constrained international immobility," Nature Climate Change, Nature, vol. 12(7), pages 634-641, July.
    7. Boneva, Lena & Ferrucci, Gianluigi & Mongelli, Francesco Paolo, 2021. "To be or not to be “green”: how can monetary policy react to climate change?," Occasional Paper Series 285, European Central Bank.
    8. Fischer, Lion & Rapp, Marc Steffen & Zahner, Johannes, 2024. "Central banks sowing the seeds for a green financial sector? NGFS membership and market reactions," IMFS Working Paper Series 198, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).

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    More about this item

    Keywords

    Climate change; Disasters; Households expectations; Survey; Media focus; Monetary policy; Natural rate of interest; Paradox of communication;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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