Local Time
- Timezone: America/New_York
- Date: May 14 2026
- Time: 8:00 pm - 9:15 pm
KWEN Mentor-Mentee Seminar – May 14, 2026
Title: Climate Policy and Sovereign Default Risk
Presenter: Professor Vivian Yue (Emory University)
Discussant: Professor Soo Kyung Woo (Sogang University)
Time: May 14, 2026, 8:00 PM Eastern Time (US and Canada)
Meeting ID: 857 7895 3211
Passcode: 929038
Abstract: This paper examines climate policy in an economy with endogenous sovereign default risk. Empirical evidence demonstrates that an increase in carbon price leads to higher sovereign spreads and lower economic activity in the short run, with the effects magnified for highly indebted countries. Building on these findings, we develop a small open economy model with strategic sovereign default and pollution externalities to quantify the role of default risk in shaping the macroeconomic effects of climate policy. Consistent with the data, the calibrated model predicts that sovereign risk increases following a carbon price shock, especially when sovereign debt is high. We find that endogenous sovereign default risk can significantly amplify the short-run economic costs of the green transition.