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Can Germany’s economy stage an unexpected recovery?Steffen MüllerThe Economist, January 30, 2025
The optimal transition to a low-carbon economy must account for adjustment costs in switching from dirty to clean capital, technological progress, and economic and climatic shocks.
We study climate and macroprudential policies in an economy with financial frictions. Using a dynamic stochastic general equilibrium model featuring both a pollution market failure and a market failure in the financial sector, we explore transition risk – whether ambitious climate policy can lead to macroeconomic instability.
We construct a novel measure of local climate change attention using a comprehensive dataset of newspaper coverage from 2000-2022, encompassing over 5,000 US newspapers. We document an increasing trend in climate attention and growing polarization in climate-related sentiment across the US.
