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Demand or Supply? An empirical exploration of the effects of climate change on the macroeconomy

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  • Ciccarelli, Matteo
  • Marotta, Fulvia

Abstract

Using an original panel data set for 24 OECD countries over the sample 1990–2019 and a multivariate empirical macroeconomic framework for business cycle analysis, the paper tests the combined macroeconomic effects of climate change, environmental policies and green innovation. Overall, we find evidence of significant macroeconomic effects over the business cycle: physical risks act as negative demand shocks while transition risks act as downward supply movements. The disruptive effects on the economy typical of a disorderly transition are exacerbated for low income, high emission countries with no history of environmental policy or with a high exposure to natural disasters. In general, one size does not fit all and results support the need for a (possibly country-specific) policy mix to counteract climate change with a balance between demand-pull and technology-push policies.

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  • Ciccarelli, Matteo & Marotta, Fulvia, 2024. "Demand or Supply? An empirical exploration of the effects of climate change on the macroeconomy," Energy Economics, Elsevier, vol. 129(C).
    • Handle: RePEc:eee:eneeco:v:129:y:2024:i:c:s0140988323006618
    DOI: 10.1016/j.eneco.2023.107163
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    Cited by:

    1. Andrea Bastianin & Elisabetta Mirto & Yan Qin & Luca Rossini, 2024. "What drives the European carbon market? Macroeconomic factors and forecasts," Papers 2402.04828, arXiv.org, revised Feb 2024.
    2. Lucidi, Francesco Simone & Pisa, Marta Maria & Tancioni, Massimiliano, 2024. "The effects of temperature shocks on energy prices and inflation in the Euro Area," European Economic Review, Elsevier, vol. 166(C).
    3. Punzi, Maria Teresa, 2024. "The role of macroprudential policies under carbon pricing," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 858-875.
    4. Chan, Ying Tung & Punzi, Maria Teresa & Zhao, Hong, 2024. "Green transition and financial stability: The role of green monetary and macroprudential policies and vouchers," Energy Economics, Elsevier, vol. 132(C).
    5. Meltem Chadwick & Hulya Saygili, 2024. "Temperature, precipitation and food price inflation: Evidence from a panel of countries," Working Papers wp55, South East Asian Central Banks (SEACEN) Research and Training Centre.

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    More about this item

    Keywords

    Environmental policy; Environment-related technologies; Physical risks; Business cycle; SVAR;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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