Monetary and Macroprudential Policy with Endogenous Risk

We extend the New Keynesian (NK) model to include endogenous risk. Lower interest rates not only shift consumption intertemporally but also conditional output risk via their impact on risk-taking, giving rise to a vulnerability channel of monetary policy. The model fits the conditional output gap distribution and can account for medium-term increases in downside risks when financial conditions are loose. The policy prescriptions are very different from those in the standard NK model: monetary policy that focuses purely on inflation and output-gap stabilization can lead to instability. Macroprudential measures can mitigate the intertemporal risk-return tradeoff created by the vulnerability channel.

From Dichotomy to an Integrated Approach: Cities’ Benefits of Integrating Climate Change Adaptation and Mitigation

Cities are facing impacts of climate change and encountering risks such as extreme weather events, while cities are also aiming to contribute to their mitigation goals by reducing greenhouse gas emissions. However, the differences in characteristics of climate change mitigation and adaptation have shown the possible reasons for a dichotomy in climate policy. This has motivated us to further look into whether cities could integrate their actions in climate change mitigation and adaptation in their planning and how they achieve benefits to overcome the dichotomy. To answer our research question, we have developed an analysis framework built on the endogenous risk theory to analyse how cities overcome the different characteristics to integrate their climate strategies and obtain benefits. The theory of endogenous risk involves seeing both climate change mitigation and adaptation as risk reduction strategies because both of them aim to reduce climate risks and can be carried out by actors who perceive such risks. Therefore, the actors will be more willing to integrate and implement both mitigation and adaptation policy. Our results show that mitigation and adaptation in cities are interlinked and that benefits of an integrated climate change policy exist. A list of entry points how cities overcome the dichotomy are also identified. Our research outcomes also provide a list of benefits identified by the cities in their integrated climate strategies and we call for more public disclosed data for future research and policy assessments.