Research
Job Market Paper
This paper studies how climate tail risk affects household wealth accumulation when the primary saving asset is itself exposed to destruction. I embed an empirically estimated census-tract-level process for disaster-induced depreciation into a heterogeneous-agent model with incomplete markets. Because wealth simultaneously serves as self-insurance and the object at risk, disaster exposure weakens precautionary saving incentives and reshapes the wealth distribution.
Quantitatively, aggregate effects are modest: empirically calibrated disaster risk reduces aggregate capital by less than 1 percent. Distributional effects, however, are substantial. Households exposed to greater climate risk accumulate less wealth, are more likely to remain hand-to-mouth, and experience greater financial fragility. The share of hand-to-mouth households increases by roughly 30 percentage points, while wealth inequality rises markedly. These findings suggest that climate tail risk operates primarily through a distributional channel rather than through large aggregate contractions.
Publications
This paper uses a tractable stochastic integrated‐assessment model to analyze the influence of climate change on asset returns across time and maturity. Quasi‐analytical, or recursive, formulas allow to price various long‐dated assets, including fixed‐income products, derivatives, and equities. We find that climate risks will increasingly drive down long‐term risk‐free yields, reducing them by about 30 basis points by the end of the century. This decline reflects weaker growth and increased uncertainty, leading to a rise in precautionary savings. We illustrate the concept of climate risk premiums by examining model‐implied prices of long‐term assets vulnerable to sea level rise or temperatures. Climate risk premiums are particularly sensitive to damage assumptions.
We make the case for sovereign climate-linked bonds (CLBs), long-dated debt instruments whose payments depend on an observable climate index. Unlike green bonds, CLBs transfer climate risk rather than earmark funds, and their prices could provide market-based measures of expected climate outcomes. Issuing them confronts governments with a central trade-off: investors may pay an insurance premium for bonds that perform well in adverse climate states, lowering expected financing costs, but the same payoff raises debt service when climate damages may already weaken public finances. In an illustrative frictionless calibration, the financing benefit and the fiscal-risk cost of this additional exposure are of similar magnitude, leaving only a small net benefit before accounting for information. Modest informational gains are therefore material, but small implementation costs can overturn the result.
Working Papers
This paper examines how the interaction between manufacturing firms and electricity producers shapes the cost and incidence of decarbonization. We develop a two-sector framework in which manufacturers choose between purchased electricity and on-site clean generation, while the electricity sector produces power using clean and dirty capital. This make-or-buy margin allows climate policy to reallocate clean investment across sectors.
The results show that the value of self-generation depends on the electricity market structure. Under perfect competition, self-generation lowers welfare in the calibrated economy, but reduces dirty electricity capital by about 12 percent, corresponding to roughly 79 million tonnes of CO2 under a proportional emissions mapping. Under monopoly, it improves welfare by giving manufacturers an outside option against high electricity prices and limiting price pass-through. Carbon taxes reduce dirty capital and induce anticipatory investment, while clean-capital subsidies expand clean capacity but require household financing. The analysis highlights electricity sourcing as a key margin through which climate policy affects prices, investment, and welfare.
Work in Progress
Policy Papers
The Swedish krona depreciated sharply between 2013 and early 2020 but standard models are unable to explain this depreciation. This paper reviews the experience of the krona. By estimating an ‘equilibrium’ value for the real exchange rate, we confirm a growing undervaluation after 2014. The depreciation could initially be explained by a decline in interest rates and then by quantitative easing and the Riksbank communication regarding the krona. However, monetary policy cannot explain the extent of the depreciation nor the long depreciation period of seven years. We then review various complementary explanations proposed in the literature, including imperfect information, financial frictions, the role of financial shocks and the convenience yield. Many of these elements can plausibly explain the weakness of the krona, but cannot be quantified.
Research