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

Author

Listed:
  • Emilio Carnevali

    (University of Leeds, Economics Division; and Department for Work and Pensions, UK Government.)

  • Matteo Deleidi

    (University College London, Institute for Innovation and Public Purpose; and Roma Tre University, Department of Economics.)

  • Riccardo Pariboni

    () (Roma Tre University, Department of Economics; and Freie Universitat, Berlin.)

  • Marco Veronese Passarella

    () (University of Leeds, Economics Division)

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.

Suggested Citation

  • Emilio Carnevali & Matteo Deleidi & Riccardo Pariboni & Marco Veronese Passarella, 2019. "Cross-Border Financial Effects of Global Warming In a Two-Area Ecological SFC Model," UMASS Amherst Economics Working Papers 2019-02, University of Massachusetts Amherst, Department of Economics.
  • Handle: RePEc:ums:papers:2019-02
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    File URL: http://www.umass.edu/economics/publications/2019-02.pdf
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    More about this item

    Keywords

    Stock-Flow Consistent Models; Climate Change; Financial Stability;

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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