We study climate and macroprudential policies in an economy with financial frictions. Using a dynamic stochastic general equilibrium model featuring both a pollution market failure and a market failure in the financial sector, we explore transition risk - whether ambitious climate policy can...

This paper applies principles of adverse selection to overcome obstacles that prevent the implementation of Pigouvian policies to internalize externalities. Focusing on negative externalities from production (such as pollution), we consider settings in which aggregate emissions are known, but...