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Insurance, Weather, and Financial Stability
Kahn, Charles M.; Panjwani, Ahyan; Santos, João A. C. (2024-05-01)
In this paper, we introduce a model to study the interaction between insurance and banking. We build on the Federal Crop Insurance Act of 1980, which significantly expanded and restructured the decades-old federal crop insurance program and adverse weather shocks – over-exposure of crops to heat and acute weather events – to investigate some insights from our model. Banks increased lending to the agricultural sector in counties with higher insurance coverage after 1980, even when affected by adverse weather shocks. Further, while they increased risky lending, they were sufficiently ...
Staff Reports , Paper 1107

Working Paper
Pricing of Climate Risk Insurance: Regulation and Cross-Subsidies
Oh, Sangmin; Sen, Ishita; Tenekedjieva, Ana-Maria (2022-10-03)
Homeowners’ insurance, a $15 trillion market by coverage, provides households financial protection from climate losses. Insurance premiums (rates) are subject to significant regulations at a state level in the United States. Using novel data on filings made by insurers to regulators, we propose a metric to quantify the extent of regulation in individual states. We provide evidence of decoupling of insurance rates from their underlying risks and identify regulation as a driving force behind this pattern. Rates are least reflective of risk in states we classify as "high friction", ...
Finance and Economics Discussion Series , Paper 2022-064

Working Paper
Climate Shocks in the Anthropocene Era: Should Net Domestic Product Reflect Climate Disasters?
Nakamura, Leonard I.; Sliker, Brian (2025-01-07)
The asset costs of natural disasters in the United States grew rapidly from 1980 to 2023, with the trend rising 4.9 percent annually in real terms to $90 billion in 2023. Much of this trend in costs is likely due to climate change and, as a loss of assets, implies a faster depreciation of real assets. We argue that the expected depreciation from these events should be included in Consumption of Fixed Capital (CFC), leading to lower levels and slightly lower growth rates for Net Domestic Product (NDP) and Net Domestic Investment. We use Poisson pseudo-maximum-likelihood regressions to estimate ...
Working Papers , Paper 25-01

Working Paper
Corporate Green Pledges
Bauer, Michael D.; Huber, Daniel; Offner, Eric; Renkel, Marlene; Wilms, Ole (2024-11-20)
We identify corporate commitments for reductions of greenhouse gas emissions—green pledges—from news articles using a large language model. About 8% of publicly traded U.S. companies have made green pledges, and these companies tend to be larger and browner than those without pledges. Announcements of green pledges significantly and persistently raise stock prices, consistent with reductions in the carbon premium. Firms that make green pledges subsequently reduce their CO2 emissions. Our evidence suggests that green pledges are credible, have material new information for investors, and ...
Working Paper Series , Paper 2024-36

Working Paper
Adaptation and the Cost of Rising Temperature for the U.S. Economy
Gourio, Francois; http://fedora:8080/fcrepo/rest/objects/authors/ (2020-03-02)
How costly will rising temperature due to climate change be for the U.S. economy? Recent research has used the well-identified response of output to weather to estimate this cost. But agents may adapt to the new climate. We propose a methodology to infer adaptation technology from the heterogeneous responses of output to weather observed currently across the U.S. Our model estimates how much each region has adapted already, and can predict how much each will adapt further after climate change. The size and distribution of losses from climate change vary substantially once adaptation is taken ...
Working Paper Series , Paper WP 2020-08

Working Paper
The Green Corporate Bond Issuance Premium
Caramichael, John; Rapp, Andreas (2022-06-02)
We study a global panel of green and conventional bonds to assess the borrowing cost advantage at issuance for green bond issuers. We find that, on average, green bonds have a yield spread that is 8 basis points lower relative to conventional bonds. This borrowing cost advantage, or greenium, emerges as of 2019 and coincides with the growth of the sustainable asset management industry following EU regulation. Within this context, we find that the greenium is linked to two proxies of demand pressure, bond oversubscription and bond index inclusion. Moreover, while green bond governance appears ...
International Finance Discussion Papers , Paper 1346

Working Paper
The Impact of Weather on Local Government Spending
Zhao, Bo (2022-09-01)
While there is a new and rapidly growing literature on the effects of climatic factors on economic and social outcomes, little research has been conducted to understand the fiscal impact of weather, especially at the sub-state level. Using data from Massachusetts municipalities from 1990 through 2019, this paper estimates government spending as a function of temperature and precipitation while controlling for municipality and year fixed effects and municipality-specific time trends. The results show that weather has statistically significant and economically meaningful effects on local ...
Working Papers , Paper 22-22

Report
Understanding the Linkages between Climate Change and Inequality in the United States
Avtar, Ruchi; Blickle, Kristian S.; Chakrabarti, Rajashri; Janakiraman, Janavi; Pinkovskiy, Maxim L. (2021-11-01)
We conduct a review of the existing academic literature to outline possible links between climate change and inequality in the United States. First, researchers have shown that the impact of both physical and transition risks may be uneven across location, income, race, and age. This is driven by a region’s geography as well as its adaptation capabilities. Second, measures that individuals and governments take to adapt to climate change and transition to lower emissions risk increasing inequality. Finally, while federal aid and insurance coverage can mitigate the direct impact of physical ...
Staff Reports , Paper 991

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