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Working Paper
A New Measure of Climate Transition Risk Based on Distance to a Global Emission Factor Frontier
İşcan, Talan B.; Dennis, Benjamin (2024-04-09)
Targeted financing of transition to a "net zero" global economy entails climate transition risk. We propose a measure of transition risk at the country-sector dyad level composed of five tiers of transition risk based on two factors: i) the gap between a dyad's existing emission factor (EF) -- a measure of the greenhouse gas intensity of output -- and the global 'frontier' sectoral EF, and ii) a dyad's recent convergence towards the frontier EF. Dyads that are either close to the frontier or converging towards the frontier carry lower transition risk. Our measure, using 45 sectors across 66 ...
Finance and Economics Discussion Series , Paper 2024-017

Working Paper
Do Sustainable Investment Strategies Hedge Climate Change Risks? Evidence from Germany's Carbon Tax
Ochoa, Marcelo; Paustian, Matthias; Wilcox, Laura (2022-11-04)
It is difficult to assess the effectiveness of investment strategies that screen companies based on environmental criteria to hedge climate change risk because physical risks have not yet fully materialized and policies to combat climate change are usually widely anticipated. This paper sidesteps these limitations by analyzing the stock market response to plausibly exogenous changes in expectations about the level of a carbon tax in Germany. The risk-adjusted return on two sustainable investment approaches---screening companies based on environmental scores and on firms' carbon ...
Finance and Economics Discussion Series , Paper 2022-073

Working Paper
Unequal Climate Policy in an Unequal World
Belfiori, Elisa; Carroll, Daniel R.; Hur, Sewon (2024-07-16)
We study climate policy in an economy with heterogeneous households, two types of goods (clean and dirty), and a climate externality from the dirty good. Using household expenditure and emissions data, we document that low-income households have higher emissions per dollar spent than high-income households, making a carbon tax regressive. We build a model that captures this fact and study climate policies that are neutral with respect to the income distribution. A central feature of these policies is that resource transfers across consumers are ruled out. We show that the constrained optimal ...
Globalization Institute Working Papers , Paper 427

Discussion Paper
Flood-Prone Basement Housing in New York City and the Impact on Low- and Moderate-Income Renters
Kramer, Claire; Nair, Ambika; di Giovanni, Julian (2023-11-17)
Hurricane Ida, which struck New York in early September 2021, exposed the region’s vulnerability to extreme rainfall and inland flooding. The storm created massive damage to the housing stock, particularly low-lying units. This post measures the storm’s impact on basement housing stock and, following the focus on more-at-risk populations from the two previous entries in this series, analyzes the attendant impact on low-income and immigrant populations. We find that basements in select census tracts are at high risk of flooding, affecting an estimated 10 percent of low-income and immigrant ...
Liberty Street Economics , Paper 20231117

Working Paper
On the GDP Effects of Severe Physical Hazards
Bodenstein, Martin; Scaramucci, Mikaël (2024-02-13)
We assess the impacts from physical hazards (or severe weather events) on economic activity in a panel of 98 countries using local projection methods. Proxying the strength of an event by the monetary damages it caused, we find severe weather events to reduce the level of GDP. For most events in the EM-DAT data set the effects are small. The largest events in our sample (above the 90th percentile of damages) bring down the level of GDP by 0.5 percent for several years without recovery to trend. Smaller events (below the 90th percentile) see a less immediate decrease in initial years (0.1 ...
International Finance Discussion Papers , Paper 1386

Report
Disaster (over-)insurance: the long-term financial and socioeconomic consequences of Hurricane Katrina
Bleemer, Zachary; Van der Klaauw, Wilbert (2017-02-01)
Federal disaster insurance?in the form of national flood insurance, the Federal Emergency Management Agency (FEMA), and other programs?is designed to nationally-distribute large geography-specific shocks like earthquakes and hurricanes. This study examines the local longrun net impact of Hurricane Katrina and the subsequent policy response on impacted residents. Using a unique fifteen-year panel of five percent of adult Americans? credit reports, we find higher rates of insolvency and lower homeownership among inundated residents of New Orleans ten years after the storm, relative to their ...
Staff Reports , Paper 807

Working Paper
Climate Shocks in the Anthropocene Era: Should Net Domestic Product Be Affected by Climate Disasters
Nakamura, Leonard I.; Sliker, Brian (2023-10-30)
The monetary costs of weather and climate disasters in the U.S. have grown rapidly from 1980 to 2022, rising more than 5 percent in real terms annually. Much of this real growth in costs is likely due to climate change. Regardless of its cause, these costs imply a faster depreciation of real assets. We argue that the expected depreciation from these events could be included in the consumption of fixed capital, leading to lower levels, and slightly lower growth rates, for net domestic product (NDP). We use Poisson pseudo-maximum-likelihood regressions to estimate this expectation and to ...
Working Papers , Paper 23-24

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

Discussion Paper
The Impact of Natural Disasters on the Corporate Loan Market
Ivanov, Ivan T.; Macchiavelli, Marco; Santos, João A. C. (2020-11-18)
Natural disasters are usually associated with an increase in the demand for credit by both households and companies in the affected regions. However, if capacity constraints preclude banks from meeting the local increase in demand, the banks may reduce lending elsewhere, thus propagating the shock to unaffected areas. In this post, we analyze the corporate loan market and find that banks, particularly those with lower capital, reduce credit provisioning to distant regions unaffected by natural disasters. We also find that shadow banks only partially offset the reduction in bank credit, so ...
Liberty Street Economics , Paper 20201118

Working Paper
Weathering an Unexpected Financial Shock: The Role of Cash Grants on Household Finance and Business Survival
Gallagher, Justin; Hartley, Daniel; Rohlin, Shawn M. (2019-10-28)
We estimate the causal effect of cash grants on household finance and business survival following a natural disaster. Disaster-affected individuals in high damage blocks with access to cash grants have 17% less credit card debt following the disaster than those without access to cash grants. Grants do not reduce negative financial outcomes, but do decrease migration. The grants play a role in mitigating the effects of the shock to businesses; resulting in 18% more establishments and 29% more employees post-disaster in disaster-affected neighborhoods where residents receive grants, relative to ...
Working Paper Series , Paper WP-2019-10

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