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Transition Risk: Sources and Policy Responses

Author

Listed:
  • Stefano Carattini
  • Garth Heutel
  • Givi Melkadze
  • Inès Mourelon

Abstract

Transition risk – the financial stability risk related with decarbonization – is a major source of concern. The literature has so far only studied transition risk caused by carbon tax shocks. This paper explores other potential sources of transition risk: two other policy sources – subsidies to abatement or to green producers – and two preference-based sources – a shock to consumer preferences and a shock to investor preferences. We develop an environmental dynamic stochastic general equilibrium model that includes a frictional financial sector, and we consider macroprudential policy responses to transition risks. These different shocks have different effects on the possibility of transition risk and lead to different macroprudential policy implications.

Suggested Citation

  • Stefano Carattini & Garth Heutel & Givi Melkadze & Inès Mourelon, 2024. "Transition Risk: Sources and Policy Responses," NBER Working Papers 33275, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33275
    Note: EEE EFG
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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