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.