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Climate investments, stock markets, and the open economy

Published online by Cambridge University Press:  20 November 2024

Luccas Assis Attílio Open the ORCID record for Luccas Assis Attílio [Opens in a new window] ,
João R. Faria  and
Peter McAdam
Luccas Assis Attílio
Affiliation:
Federal University of Ouro Preto, Mariana, Brazil
João R. Faria
Affiliation:
Florida Atlantic University, Boca Raton, US
Peter McAdam*
Affiliation:
European Central Bank, Frankfurt am Main, Germany
*
Corresponding author: Peter McAdam; Email: [email protected]
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Abstract

We analyze the effect of green patents on G7 stock market returns. First, we build a small IS-LM model to identify the relevant channels, augmented with open-economy channels and the Green Tobin’s q (Faria et al., 2022). The model highlights that the intertemporal impacts of greening on stock returns are ambiguous. We then turn to an estimated global vector autoregressive model to more rigorously analyze the effect of monetary and green patenting shocks across the G7. Both shocks influence green patents through real and financial markets. As regards green patent shocks, results suggest that a tension exists over time between promoting pollution reduction and energy efficiency and the profitability of (green and brown) companies in the aggregate. We perform a variety of robustness exercises around our main results. Our results provide something of a challenge to the literature and call for more research effort to understand the various channels that might explain this dynamic—and in turn whether any particular policy recommendations follow.

Keywords

Green Tobin’s qsustainabilityriskinterest ratesinternational spilloversaggregate economyE37F15F47O30Q20
Type
Articles
Information
Macroeconomic Dynamics , Volume 29 , 2025 , e58
Copyright
© The Author(s), 2024. Published by Cambridge University Press

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