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Big news: Climate-disaster expectations and the business cycle

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  • Dietrich, Alexander M.
  • Müller, Gernot J.
  • Schoenle, Raphael S.

Abstract

News—anticipated changes of an economy’s fundamentals—drive the business cycle. Climate change is big news: it will impact the economy profoundly, but its full effect will take time to materialize. To better understand the transmission of news, this paper focuses on climate-change expectations. First, we measure the expected economic impact of climate change in a representative survey of U.S. consumers. We find, in particular, that costly natural disasters are salient of climate change. Second, we calibrate a New Keynesian model with rare disasters to the survey results and find that shifts in climate-change expectations operate like adverse demand shocks.

Suggested Citation

  • Dietrich, Alexander M. & Müller, Gernot J. & Schoenle, Raphael S., 2024. "Big news: Climate-disaster expectations and the business cycle," Journal of Economic Behavior & Organization, Elsevier, vol. 227(C).
    • Handle: RePEc:eee:jeborg:v:227:y:2024:i:c:s0167268124003330
    DOI: 10.1016/j.jebo.2024.106719
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    More about this item

    Keywords

    Climate change; Disasters; Expectations; Survey; Monetary policy; Business cycle; Natural rate of interest;
    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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