Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/331437 
Year of Publication: 
2025
Series/Report no.: 
Working Paper No. 18.2025
Publisher: 
Fondazione Eni Enrico Mattei (FEEM), Milano
Abstract: 
This paper examines the macro-financial effects of alternative adaptation strategies in response to exogenous shocks in labor productivity caused by climate change. Using a Stock-Flow-Consistent Agent-Based model calibrated to U.S. data, we analyze two main scenarios: (i) a change in the conduct of monetary policy to account for climate-related damages, and (ii) a firm-level adaptation strategy that internalizes expected climate losses. We evaluate both scenarios under the assumption of either homogeneous or heterogeneous climate shocks. Our results indicate that both strategies can mitigate the adverse effects of climate change on output and wealth distribution. However, their performance is significantly worse in the presence of heterogeneous climate shocks, which also lead to a persistent increase in firms' leverage. Moreover, while firm-level adaptation relies primarily on internal resources, monetary policy adjustments increase firms' dependence on external debt financing, underscoring the need for closer monitoring of financial stability in such circumstances.
Subjects: 
Integrated assessment model
Agent-based model
Financial stability
Climate change adaptation
Climate-aware monetary policy
JEL: 
C63
E50
Q50
Document Type: 
Working Paper

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