Climate Policy, Financial Frictions and Transition Risk

Venue :Online Seminars
Host Name :The SEACEN Centre
Date From :20 Sep 2022
Date To :20 Sep 2022


Seminar Title: “Climate Policy, Financial Frictions and Transition Risk”

Presenter:  Prof. Givi Melkadze

Affiliation:  Department of Economics, Georgia State University




Climate and macroprudential policies in an economy with financial frictions are both studies. Using a dynamic stochastic general equilibrium model featuring both a pollution market failure and a market failure in the financial sector, transition risk is explored – whether ambitious climate policy can lead to macroeconomic instability. It can, but the risk can be alleviated through macroprudential policies – taxes or subsidies on banks’ assets. Then, efficient climate and macroprudential policy in the long run and over business cycles are explored. The presence of financial frictions affects the steady-state value and dynamic properties of the efficient carbon tax. Macroprudential policy alone, without a carbon tax, is not very effective at addressing the pollution externality.

The paper to be presented can be downloaded from the NBER website at this address: