DP15866 The Expectations Channel of Climate Change: Implications for Monetary Policy

Author(s):	Alexander Dietrich, Gernot Müller, Raphael Schoenle
Publication Date:	March 2021
Date Revised:	January 2022
Keyword(s):	climate change, Disasters, Households Expectations, Media focus, monetary policy, Natural rate of interest, Paradox of Communication, survey
JEL(s):	E43, E52, E58
Programme Areas:	Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=15866

We measure expectations about the short-run economic impact of climate change in a representative survey of US consumers. Respondents expect not much of an impact on GDP growth, but perceive a high probability of costly, rare disasters---suggesting they are salient of climate change. Furthermore, expectations vary systematically with socioeconomic characteristics, media consumption, various information treatments and over time. We calibrate a New Keynesian model to key results of the survey and spell out two implications for monetary policy. First, climate-change related disaster expectations lower the natural rate of interest substantially. Second, time-variation in disaster expectations contributes to cyclical fluctuations.