Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/275676 
Year of Publication: 
2023
Series/Report no.: 
Deutsche Bundesbank Discussion Paper No. 23/2023
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
In a structural dynamic model that incorporates two broad production sectors with different carbon emissions, we find that climate policy uncertainty (CPU) shocks (i) lower the market value of the highly carbon-emitting sector relative to the low carbon-emitting sector, and (ii) reduce real investment and the capital stock in the highly carbon-emitting sector, while real investment in the sector with low carbon emissions tends to fare better. To apply the theoretical predictions to the data, we employ a news article-based measure of climate policy uncertainty to identify CPU shocks as well as quarterly balance sheet data of listed firms in the United States. In line with the predictions from the theoretical model, we find that in response to CPU shocks (i) financial markets markedly revalue strongly carbon-emitting firms relative to firms with low carbon emissions, and (ii) substantial investment reallocation takes place, in particular from the manufacturing sector towards services.
Subjects: 
Climate policy uncertainty
production factor reallocation
firm-level investment decision
financial market valuation
JEL: 
E22
E44
Q54
Q58
ISBN: 
978-3-95729-954-3
Document Type: 
Working Paper

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