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Working Paper
Financial Conditions and Capital Investment Choices
We show, both theoretically and empirically, that tight financial conditions shift investment toward cheaper but less energy-efficient capital. In a small open-economy model with vintage capital, higher financing costs reduce the present value of future energy savings, tilting firms’ choices along a cost efficiency frontier. Using 150 years of macroeconomic and energy data from 17 advanced economies, we find that tighter financial conditions reduce output, capital, and total energy consumption, but raise the amount of energy per unit of capital (energy intensity), a composition effect that ...
Briefing
Sea Level Rise and Effects on House Prices
High-resolution data allows detailed mapping of where sea level rise will affect U.S. coastlines.Linking inundation maps with housing data provides estimates of when specific properties may be inundated.Housing markets already appear to reflect long-term sea level rise exposure in property prices.
Briefing
When the Mortgage Becomes the Backup Plan: Debt and Disaster Insurance
Debt crowds out flood insurance, as homeowners with little equity have less to lose from default, making their mortgage an implicit backup plan that substitutes for formal coverage.Uninsured exposure is highest in the riskiest areas, precisely where flood damage is most likely.After Hurricane Harvey, uninsured homeowners defaulted three times more often than the regular default rate.
Briefing
The Impact of Higher Temperatures on Economic Growth
What happens to the economy when it gets hot outside? Despite long-standing assumptions that economic damage from rising global temperatures would be limited to the agricultural sector or developing economies, this Economic Brief presents evidence that higher summer temperatures hurt a variety of business sectors in the United States
Briefing
The Roots of ‘Bubbly’ Recessions
A downturn following the collapse of an asset bubble ? an episode of speculative booms in asset prices ? can be severe and sustained, with output and employment often lower than in the prebubble economy. This Economic Brief considers some possible theoretical explanations. It argues, based on insights from a simple economic model, that the interaction among financial frictions, wage rigidity, and the constraints of monetary policy near the zero lower bound is a key source of inefficiency in large bubbles. One potential remedy is to regulate speculative investment on bubbly assets so that ...
Briefing
Asset Bubbles and Global Imbalances
What caused the housing boom and bust of the early 2000s? Capital inflows from emerging markets to developed economies can contribute to the formation of bubbles in asset prices. Those bubbles encourage the accumulation of debt, and the deleveraging of that debt exacerbates the decline in economic activity when the bubble bursts.
Briefing
Pricing and Mispricing of Climate Risks in U.S. Financial Markets
There is a rapidly growing research literature studying the effects of climate change risks on financial markets. Recent evidence suggests that markets have started to price climate risks. However, the extent of pricing varies across markets and time, and there is evidence of potential market inefficiencies. This article will highlight some key findings and their policy implications.
Briefing
Are Some Homebuyers Strategically Transferring Climate Risks to Lenders?
Recent empirical research suggests that certain homebuyers may be strategically transferring climate risks to banks via the mortgage market, and banks may be transferring such risks to government-sponsored enterprises via securitization. The evidence highlights the nuanced ways in which participants in the financial markets strategically adapt to climate change.
Briefing
A New Look at the Effects of Weather Shocks Over Time
This article examines the relationship between severe weather shocks and the U.S. macroeconomy from 1963 to 2019, applying a novel empirical approach to high-frequency data. We find weather shocks are growing in their influence on key economic variables, such as industrial output, unemployment and inflation.