Question A:
Under current policies on climate change, the associated physical risks (such as those arising from total seasonal rainfall and sea level changes, and increased frequency, severity, and correlation of extreme weather events) will be at most a very small factor in monetary policy decisions over the next decade.
Responses
Responses weighted by each expert's confidence
Question B:
The physical risks associated with climate change under current policies are likely to threaten financial stability over the next decade.
Responses
Responses weighted by each expert's confidence
Question A Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
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 John Campbell |
Harvard | Bio/Vote History | ||
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This depends on the severity of climate change and the vulnerability of a country to its effects.
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 John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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You have to have a very expansive view of monetary policy and technocratic capacity (with 10% inflation in the rear view mirror) to draw a connection between the overnight federal funds rate and slow moving co2 related changes in the probability distribution of the weather.
-see background information here |
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 Francesca Cornelli |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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 Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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 Wenxin Du |
HBS | Bio/Vote History | ||
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 Darrell Duffie |
Stanford | Bio/Vote History | ||
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 Janice Eberly |
Northwestern Kellogg | Bio/Vote History | ||
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Even if policy does not explicitly target climate risks, those risks may appear as economic shocks. Monetary policy has responded strongly to external shocks, such as the pandemic, when they are large enough, regardless of origin.
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 Eugene Fama |
Chicago Booth | Bio/Vote History | ||
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"Would be" and "should be" are two entirely different things. "Would be" requires a judgement about policy. "Should be" is a judgement about science.
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 Xavier Gabaix |
Harvard | Bio/Vote History | ||
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 Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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 John Graham |
Duke Fuqua | Bio/Vote History | ||
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 Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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While climate plays little or no role in current policy, the question is about the next decade. If the frequency of extreme events continues to increase, it is plausible that there could by systemic events that become more than a "small factor for monetary policy."
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 Harrison Hong |
Columbia | Bio/Vote History | ||
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 Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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 Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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Not sure what the Central Banks will do, but they should view climate change as a very small factor relative to other factors.
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 Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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 Ralph Koijen |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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 Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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 Andrew Lo |
MIT Sloan | Did Not Answer | Bio/Vote History | |
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 Michelle Lowry |
Drexel LeBow | Did Not Answer | Bio/Vote History | |
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 Sydney Ludvigson |
NYU | Bio/Vote History | ||
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 Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
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 Gregor Matvos |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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 Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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 Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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 Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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Under current policies, government debt is on an unsustainable path, and a climate disaster may be the straw that breaks the camels back. But it’s not even obvious whether natural disasters should lead to looser or tighter monetary policy.
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 Christine Parlour |
Berkeley Haas | Bio/Vote History | ||
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 Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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 Manju Puri |
Duke Fuqua | Did Not Answer | Bio/Vote History | |
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 Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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 Paola Sapienza |
Hoover Institution Stanford | Did Not Answer | Bio/Vote History | |
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 Amit Seru |
Stanford GSB | Bio/Vote History | ||
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 Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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 Laura Starks |
UT Austin McCombs | Did Not Answer | Bio/Vote History | |
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 Jeremy Stein |
Harvard | Bio/Vote History | ||
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 Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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"Very small" is hard to get a sense of. It seems clear that many of the physical risks materialize on horizons beyond a decade, and that effects on monetary policy (through inflation and employment)may take a while to materialize. That doesn't mean they are not there
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 Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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 Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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Monetary policy is a short-run stabilization tool, and a cyclical financial stability tool, not a tool meant for responding to long-term trends like climate change. Risk-based bank capital regulation may be a better tool to address climate change.
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 Toni Whited |
UMich Ross School | Bio/Vote History | ||
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Question B Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
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John Campbell |
Harvard | Bio/Vote History | ||
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John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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No bank has ever failed from a weather event. You need a strong imagination to go from slow predictable changes in the probability distribution of the weather, which is local, to losses, through equity cushions, to anything that imperils even our crazy over-leveraged financial sy
-see background information here |
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Francesca Cornelli |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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Wenxin Du |
HBS | Bio/Vote History | ||
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Darrell Duffie |
Stanford | Bio/Vote History | ||
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Climate change risks average quality of life and the macroeconomy very substantially, in a way that gradually increases from decade to decade. The financial system is destablized by much more sudden major shocks.
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Janice Eberly |
Northwestern Kellogg | Bio/Vote History | ||
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Private and public financial institutions are exposed to climate risk via contracts like loans and insurance. Historically idiosyncratic, residual risk is poorly priced by lack of relevant data and risk modeling, leaving potentially large and interconnected exposures to a shock.
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Eugene Fama |
Chicago Booth | Bio/Vote History | ||
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Xavier Gabaix |
Harvard | Bio/Vote History | ||
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Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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John Graham |
Duke Fuqua | Bio/Vote History | ||
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Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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Conditional on increasing extreme events, it is plausible that there could be a repricing of assets as well as potentially systemic events that challenge financial stability over the next 10 years.
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Harrison Hong |
Columbia | Bio/Vote History | ||
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Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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Unclear risks are as large as other factors. Even if they turn out to be meaningful, financial system likely to be able to adjust to them without instability.
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Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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The transition risks from policies that change the price of carbon are VERY different matter and those could create lots of stranded assets.
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Ralph Koijen |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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Andrew Lo |
MIT Sloan | Did Not Answer | Bio/Vote History | |
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Michelle Lowry |
Drexel LeBow | Did Not Answer | Bio/Vote History | |
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Sydney Ludvigson |
NYU | Bio/Vote History | ||
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Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
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Gregor Matvos |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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Under the types of regulatory policies that we’ve seen in the past decade, our financial sector is well protected against climate disasters. But not all institutions are safe. Insurers face significant risk.
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Christine Parlour |
Berkeley Haas | Bio/Vote History | ||
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Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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Manju Puri |
Duke Fuqua | Did Not Answer | Bio/Vote History | |
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Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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Paola Sapienza |
Hoover Institution Stanford | Did Not Answer | Bio/Vote History | |
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Amit Seru |
Stanford GSB | Bio/Vote History | ||
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Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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Laura Starks |
UT Austin McCombs | Did Not Answer | Bio/Vote History | |
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Jeremy Stein |
Harvard | Bio/Vote History | ||
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Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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That's why we need careful and open-ended stress tests, to arrive to better answers for this for the US.
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Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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Toni Whited |
UMich Ross School | Bio/Vote History | ||
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