Big news: Climate-disaster expectations and the business cycle
Alexander Dietrich, Gernot J. Müller, Raphael Schoenle
Abstract
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.
Topics & Concepts
Big businessBusiness cycleBusinessBig dataPolitical scienceComputer scienceEconomicsOperating systemKeynesian economicsLawAtmospheric and Environmental Gas DynamicsFlood Risk Assessment and ManagementMarket Dynamics and Volatility