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Shocks to transition risk

Author

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  • Meinerding, Christoph
  • Schüler, Yves S.
  • Zhang, Philipp

Abstract

We propose and implement a method to identify shocks to transition risk, addressing key challenges regarding its definition and measurement. Our shocks are instances where significant new information about the economic relevance of climate change increases the valuation of green firms over brown firms. To illustrate our method, we identify shocks to transition risk in the United States. These shocks have important aggregate effects, also inducing financial instability. They are associated with events that increase the likelihood of an orderly transition, and they specifically affect parts of the economy related to fossil fuels and energy. We show that these main results carry over to Germany and the United Kingdom. Still, we find an important role for country specificities.

Suggested Citation

  • Meinerding, Christoph & Schüler, Yves S. & Zhang, Philipp, 2023. "Shocks to transition risk," Discussion Papers 04/2023, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:042023
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    Cited by:

    1. Jaccard, Ivan & Kockerols, Thore & Schüler, Yves, 2025. "Green and brown returns in a production economy," Working Paper Series 3030, European Central Bank.
    2. Meinerding, Christoph & Poinelli, Andrea & Schüler, Yves, 2023. "Households’ inflation expectations and concern about climate change," European Journal of Political Economy, Elsevier, vol. 80(C).

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    More about this item

    Keywords

    Transition risk; climate change; financial stability; portfolio sort; tex-tual analysis;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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