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Climate disasters, carbon dioxide, and financial fundamentals

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  • Gregory, Richard P.

Abstract

I propose a rare disaster model of an economy where the probability and intensity of climatic disasters are proxied by CO2 levels that are determined by inputs of carbons from the firms in the economy. Disasters affect the budgets, the labor allocations and investment decisions of households; the production and investment decisions of firms; and, monetary policy. Six propositions are developed relating carbon dioxide and climatic economic damages to financial variables: the risk-free rate, the price dividend ratio, and the risk premium.

Suggested Citation

  • Gregory, Richard P., 2021. "Climate disasters, carbon dioxide, and financial fundamentals," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 45-58.
    • Handle: RePEc:eee:quaeco:v:79:y:2021:i:c:p:45-58
    DOI: 10.1016/j.qref.2020.12.008
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    More about this item

    Keywords

    Rare disasters; Risk premium; Price dividend; Risk-free rate; Climate change;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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