Bank of Italy paper looks at economic impact of disasters

Aftermath of an earthquake in Japan

A working paper published by the Bank of Italy looks at the effects of natural disasters on the natural interest rate and inflation.

In Rare disasters, the natural interest rate and monetary policy, Alessandro Cantelmo simulates a non-linear New Keynesian model. He calibrates this using data on natural disasters in advanced economies.

The author finds the risk of disaster has a negative effect on demand and lowers the inflation level and the natural rate of interest. This is true even if

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