Research

Despite broad acceptance among economists, carbon taxes face persistent public resistance. We measure the sources and distribution of welfare losses from unexpected European carbon price changes by estimating their impact on consumer prices, labor income, financial wealth, and government transfers. A 1% carbon-policy-induced increase in energy prices yields an average welfare loss of about 0.5% of annual consumption, primarily driven by indirect labor-income effects. Younger, poorer, and less-educated households, especially in Southern and Eastern Europe, bear a disproportionate burden. These findings suggest public opposition to carbon taxes stems from legitimate distributional concerns. 

This paper estimates that the macroeconomic damages from climate change are six times larger than previously thought. Exploiting natural global temperature variability, we find that 1°C warming reduces world GDP by 12%. Global temperature correlates strongly with extreme climatic events, unlike country-level temperature used in previous work, explaining our larger estimate. We use this evidence to estimate damage functions in a neoclassical growth model. Business-as-usual warming implies a 25% present welfare loss and a Social Cost of Carbon of $1,367 per ton. These impacts suggest that unilateral decarbonization policy is cost-effective for large countries such as the United States.

Media coverage: Bloomberg, New York Times, The Guardian, The Economist, Forbes, MarketWatch, Globe and Mail, Neue Zürcher Zeitung, Le Monde, Les Echos, Les Echos (Opinion), Le Figaro, La Presse, La Repubblica, EURACTIV Italia, Business Standard, The Bulletin, Indian Express, Al Mayadeen, Maeil Business Newspaper, Climate Pod, Radio France Internationale, Deutschlandfunk, BFM TV, MSN Money, American Enterprise Institute, Daily Kos, Institut Avant Garde, The Ink, Table Climate, PreventionWeb, Nature World News, Business Green, Energy Monitor, Semafor, Harvard Magazine, Nature, VoxEU, Twitter thread 

This paper shows that unilateral decarbonization pays for itself in large economies. We estimate economic damages from global temperature shocks and combine them with a climate-economy model to construct Domestic Costs of Carbon: $226 per ton for the United States and $216 per ton for the European Union. When compared to marginal abatement costs, these values imply over 80% unilateral decarbonization for both economies, an order of magnitude larger than under conventional damages estimated based on local temperature.

Media coverage: Financial Times, Le Monde, Wirtschaftskunde podcast, VoxEU

We explore the increasing divergence between economic growth and energy consumption through energy-saving technical progress. Proposing a new measure of energy-saving technology, we study the underlying drivers in a semi-structural model of the U.S. economy. Our analysis shows that energy price shocks reduce consumption and stimulate energy-saving innovation, but also cause economic downturns and crowd out other innovations. Only energy-saving technology shocks can explain the negative co-movement between output and energy use. These sudden efficiency gains emerge as the primary driver of energy-saving technical change. Our findings highlight the importance of fostering energy-saving innovations in transitioning to a low-carbon economy

How do climate policies in developed countries spill over to the developing world? Using a novel dataset that combines multinational firms' subsidiary locations with spatial emission data, we study how the carbon footprint of multinational firms in Africa changes in response to more stringent climate policies in Europe. Exploiting variation in multinationals' exposure to carbon prices across European countries, we find that emissions of their African subsidiaries increase as the multinationals' European operations face higher carbon prices. At the same time, multinationals reduce their domestic investment in Europe while worldwide investment remains unchanged -- consistent with the notion that these firms shift some of their operations abroad. We confirm these results at the aggregate level, documenting a significant increase in economic activity and emissions in Africa. Policies to mitigate leakage should thus balance environmental concerns against development and equity considerations. 

Media coverage: LBS Think, Wheeler Blog, Tax Chats podcast, Oxford Business Tax Blog

We investigate whether profits can drive inflation through the interplay of income distribution and aggregate demand—our definition of “greed”—within the New Keynesian framework. We derive an analytical condition for profits to be demand-procyclical and inflationary. When distributional mechanisms are essential, a conundrum emerges: procyclical profits accruing to low-MPC asset-holders imply aggregate dampening and deflation—the opposite of greedflation. Adding capital investment delivers aggregate-demand amplification even under procyclical profits, but the latter are still deflationary. Countercyclical income risk can amplify inflation; yet since this operates through precautionary savings, not profits, it is still inconsistent with the direct “greed” narrative.

Media coverage: Twitter thread    

This paper studies the economic impacts of carbon pricing. Exploiting institutional features of the European carbon market and high-frequency data, I document that a tighter carbon pricing regime leads to higher energy prices, lower emissions and more green innovation. This comes at the cost of a fall in economic activity, which is borne unequally across society: poorer households lower their consumption significantly while richer households are less affected. The poor are more exposed because of their higher energy share and, importantly, also experience a larger fall in income. Targeted fiscal policy can help alleviate these costs while maintaining emission reductions.

Media coverage: The Economist, econimate, VoxEU, Dziennik Gazeta Prawna, Twitter thread   

Awards: Winner ECB Young Economists' Competition, AQR PhD Fellowship Award, Wheeler Institute for Business and Development PhD Award, IAEE Best Student Paper Award, Finalist QCGBF Young Economist Prize Competition

This paper examines the impact of carbon pricing on the economy, with a focus on European carbon taxes and the carbon market. Our analysis reveals three key findings. First, while both policies have successfully reduced emissions, the economic costs of the European carbon market are larger than for national carbon taxes. Second, we explore four factors that explain this difference: fiscal policy and revenue recycling, pass-through and sectoral coverage, spillovers and leakage, and monetary policy. Our findings point to important differences in pass-through and revenue use that help reconcile the differential effects between the two policies. Third, we document substantial regional heterogeneity in the impacts of the carbon market, which depend  on the share of freely allocated emission permits and the degree of market concentration in the power sector.

Media coverage: The Economist, VoxEU, Hutchins Roundup, Green Fiscal Policy Network     

A novel complementarity between capital and income inequality leads to a significant amplification of the effects of aggregate-demand shocks on consumption. We characterize this finding using a simple model with heterogeneity in household saving and income, nominal rigidities, and capital. A fiscal policy that redistributes capital income causes further amplification, whereas redistributing profits generates dampening. After an interest rate shock, consumption inequality is more countercyclical than income inequality, consistent with the available empirical evidence. Procyclical investment also requires a more aggressive Taylor rule in order to attain determinacy, and aggravates the forward guidance puzzle.

Media coverage: Twitter thread   

This paper proposes a novel approach to study the macroeconomic effects of oil prices, exploiting institutional features of OPEC and high-frequency data. Using variation in futures prices around OPEC announcements as an instrument, I identify an oil supply news shock. These shocks have statistically and economically significant effects. Negative news leads to an immediate increase in oil prices, a gradual fall in oil production and an increase in inventories. This has consequences for the U.S. economy: activity falls, prices and inflation expectations rise, and the dollar depreciates – providing evidence for a strong channel operating through supply expectations.

Media coverage: AEA Chart of the Week, Twitter thread   

The top quartile of the income distribution accounts for almost half of the pandemic-related decline in aggregate consumption, with expenditure for this group falling much more than income. In contrast, the bottom quartile of the income distribution has seen the smallest spending cuts and the largest earnings drop but their total incomes have fallen by much less because of the increase in government benefits. The decline in consumers’ spending preceded the introduction of the lockdown, whose partial lifting has triggered a stronger recovery in sectors with a lower contact rate. The largest spending contractions are concentrated in the most affluent regions. These conclusions are based on detailed high-frequency transaction data on spending, earnings and income from a large Fintech company in the United Kingdom. 

Media coverage: Financial Times, The Times, Economics Observatory, Bank Underground, Wheeler Institute Video Series 

How do international price fluctuations spill over to country-specific inflation? In this paper, we show that accounting for the drivers of international inflation and their effects on overall economic conditions is crucial to getting a more thorough view of spillover effects. We  find substantial heterogeneity in the magnitude of spillovers, depending on the shocks driving inflation abroad. While all identified shocks are inflationary, their effects on activity, interest and exchange rates differ. Looking at the responses of disaggregated prices suggests that these general equilibrium effects are indeed important. We show this by looking at spillovers to Switzerland through the lens of a structural dynamic factor model that relates a large set of disaggregated prices to key macroeconomic factors. 

We develop a novel measure of climate policy uncertainty based on newspaper coverage. Our index spikes during key U.S. climate policy events—including presidential announcements on international agreements, congressional debates, and regulatory disputes— and shows a recent upward trend. Using an instrument for plausibly exogenous uncertainty shifts, we find that higher climate policy uncertainty decreases output and emissions while raising commodity and consumer prices, acting as supply rather than demand shocks. Monetary policy counteracts these inflationary pressures, affecting the transmission of climate policy uncertainty. Firm-level analyses show stronger declines in investment and R&D when firms have higher climate change exposure.

This paper examines the relationship between green innovation and the business cycle, revealing that while non-green innovation is procyclical, green innovation is countercyclical. This pattern holds unconditionally over the business cycle and conditional on economic shocks. Motivated by these findings, we develop a business cycle model with endogenous green and non-green innovation to explain their cyclical behavior. The key mechanism operates through a ``green is in the future'' channel: green patents are expected to generate higher profits in the future, making patenting less sensitive to short-term economic downturns. In general equilibrium, this channel is reinforced, making green and non-green innovation effective substitutes. We provide direct evidence supporting the model mechanism using data on market-implied values of green and non-green patents.

This paper studies the macroeconomic consequences of global supply chain disruptions, focusing on maritime choke points critical to international trade. We identify supply chain shocks based on disruptions at key locations like the Suez and Panama Canal, using narrative accounts and high-frequency financial data. These shocks lead to a significant and persistent increase in shipping costs, which in turn has substantial economic consequences. Economic activity falls significantly and producer and consumer prices rise persistently. The persistently elevated shipping costs also lead to a sluggish expansion of the world merchant fleet, a significant increase in measures of supply chain shortages but are not associated with changes in geopolitical risk, consistent with our interpretation of exogenous supply chain disruptions. We use our estimates to discipline a network model of the U.S. economy and estimate key input elasticities.