MAXIMILIAN KONRADT

WORKING PAPERS

Innovation, Business Cycles, and the Climate Transition with Diego Känzig, Lixing Wang, and Donghai Zhang. 

We study how business cycle fluctuations shape the pace and direction of innovation. Non-green innovation is procyclical, while green innovation is countercyclical, both over the cycle and in response to economic shocks. We explain this divergence in a dynamic general equilibrium model with endogenous green and non-green innovation. Green patents derive more value from distant profits, making green innovation less sensitive to short-run fluctuations. Endogenous innovation costs reinforce this mechanism, making green and non-green innovation effective substitutes. Evidence from market-implied patent valuations and scientist earnings supports the mechanism. The model implies larger and greener effects of innovation subsidies during downturns.

Monetary Policy and Pension Fund Risk-Taking 

How does monetary policy affect pension fund risk-taking? Using aggregate data on OECD pension sectors and hand-collected micro data on 102 pension funds across 14 countries, I show that lower interest rates result in increased risk-taking. An identified 25 basis point monetary easing raises pension funds’ share of risky assets by 0.86 percentage points, reflecting active portfolio rebalancing toward equities and alternative investments that persists over time. Consistent with a liability channel, the response is stronger for funds with lower discount rates, which are more exposed to interest rate declines and face greater pressure to generate returns.

PUBLICATIONS

The Unequal Costs of Carbon Pricing: Economic and Political Effects Across European Regions 

The Economic Journal, 136(667), 2026, 1683-1703

with Giacomo Mangiante. [Working paper][VoxEU column][Nature Climate Change] 

This paper examines the economic and political effects of carbon pricing across European regions. Our main finding is that a well-identified increase in carbon prices reduces emissions but entails economic and political consequences: higher carbon prices significantly lower output and employment while increasing vote shares for extremist and populist parties, contributing to political fragmentation. Consistent with an economic voting channel, opinion surveys reveal a more pessimistic economic outlook and declining environmental concerns among respondents. Importantly, the economic and political consequences are not borne equally: carbon-intensive regions experience a larger decline in output and see a stronger shift to extremist political parties.

Exportweltmeister: Germany’s Foreign Investment Returns in International Comparison 

Journal of International Economics, 155, 2025, 104056 

with Franziska Hünnekes, Moritz Schularick, Christoph Trebesch and Julian Wingenbach. [VoxEU column][UN/BALANCED][FAZ][Handelsblatt]

In the past decade, Germany has been the world champion in exporting capital ("Exportweltmeister"). No other country invested larger amounts of savings outside its borders. However, we find that Germany plays in the third division when it comes to investment performance. To show this, we construct a comprehensive new database on the returns on foreign investment for 13 advanced economies back to the 1970s. The data reveal that Germany's annual returns on foreign assets were 2 to 5 percentage points lower than those of comparable countries. Germany ranks last among the G7 countries and earns signicantly lower foreign returns within asset classes, especially for equity and foreign direct investments. These aggregate results are confirmed with micro data on equity returns by 50,000 mutual funds worldwide. German funds perform worse across all sectors and destination countries of investment. They also seem to do a worse job in timing the market.

Climate Policy and the Economy: Evidence from Europe's Carbon Pricing Initiatives 

IMF Economic Review, 72, 2024, 1081-1124

with Diego Känzig. [VoxEU column][The Economist][Hutchins Roundup][GFPN][Speech by BOE committee member Catherine L Mann]

We study the impact of carbon pricing on the economy, with a focus on European carbon taxes and the carbon market. While both policies have successfully reduced emissions, the economic costs of the European carbon market are larger than for national carbon taxes. We explore four factors that explain this difference: fiscal policy and revenue recycling, pass-through and sectoral coverage, spillovers and leakage, and monetary policy. We document substantial regional heterogeneity in the impacts of the carbon market, which crucially depend on the share of freely allocated emission permits and the degree of market concentration in the power sector.

Carbon Taxation and Greenflation: Evidence from Europe and Canada 

Journal of the European Economic Association, 21(6), 2023, 2518-2546

with Beatrice Weder di Mauro. [VoxEU column][NY Times][Nature Climate Change][Speech by ECB board member Isabel Schnabel]

This paper studies the effects of carbon pricing on inflation dynamics. We construct a sample of carbon taxes implemented in Europe and Canada over three decades and estimate for the first time the response of inflation and price components to carbon pricing. We find that past carbon taxes changed relative prices but did not significantly increase inflation. This is consistent with previous findings of carbon taxes impacting emissions but not aggregate output. Based on the cross-section of taxes in Europe, we provide suggestive evidence that the response of inflation was especially muted in countries with revenue recycling schemes and monetary policy regimes that can accommodate the carbon tax. 

Climate Policies and Monetary Policies in the Euro Area 

ECB Forum on Central Banking Conference Proceedings, 2021, 200-238  

with Warwick McKibbin and Beatrice Weder di Mauro. [Speech by ECB president Christine Lagarde]

This paper presents two types of analysis on the interaction between climate policy and monetary policy in the euro area. We empirically estimate the past effects of carbon pricing on inflation and explore two alternative monetary policy rules under a range of simulations in a multisector model. We find that under the existing monetary policy framework, the inflationary effects of carbon taxes in Euro area countries have been contained. The results from the simulation model show that the nature of the monetary rule within Europe has a significant effect on the impact of carbon taxation. Overall, the model simulations suggest that transitions risks from carbon pricing have long run output costs but only a transitory impact on inflation. 

Corona Politics: The Cost of Mismanaging Pandemics 

Covid Economics, 50, 2020, 3-23

with Helios Herrera, Guillermo Ordoñez and Christoph Trebesch. [VoxEU column][Forbes]

The Covid-19 pandemic is a major test for governments around the world. We study the political consequences of (mis-)managing the Covid crisis by constructing a high-frequency dataset of government approval for 35 countries. In the first weeks after the outbreak, approval rates for incumbents increase strongly, consistent with a global “rally around the flag” effect. Approval, however, drops again in countries where Covid cases continue to grow. This is especially true for governments that do not implement stringent policies to control the number of infections. Overall, the evidence suggests that loose pandemic policies are politically costly. Governments that placed more weight on health rather than short-term economic outcomes obtained higher approval.