Paolo Giordani (Swedish Riksbank)

Transition risk is the risk arising from the economy’s shift towards net-zero carbon emissions. Applying a novel methodology, we find that large unanticipated increases to transition risk are predominantly related to political events and can have notable macroeconomic consequences. Interestingly, in the short run these shocks do not uniformly generate inflationary pressure, challenging the prevalent notion of “greenflation.” Finally, our results highlight an important role for country-specificities, suggesting, for instance, that there may also be economic benefits attached to the transition. Overall, while international policy coordination is essential, these findings underscore the importance of tailoring policy interventions to each nation's unique economic context.