Working Papers present research work by both Danmarks Nationalbank’s employees and our partners. Working Papers are primarily targeted at professionals and people with an interest in central banking research as well as economics and finance in a broader sense.
Working Paper: Big News: Climate Change and the Business Cycle
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.
E43; E52; E58
We thank François Gourio and Gregor von Schweinitz for generous discussions and Harald Uhlig for an insightful conversation which helped us to get this project started. We also thank Lydia Cox, Marcus Mølbak Ingholt, Edward S. Knotek, Willi Mutschler, Johannes Pfeifer, Ricardo Reis, Michael Weber, Mirko Wiederholt, and various seminar audiences for very useful comments. The views stated in this paper are those of the authors and are not necessarily those of Danmarks Nationalbank, the European System of Central Banks, the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. The randomized controlled trial is registered at the AER RCT Registry (\#AEARCTR-0006848).