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Keywords:Climate change 

Working Paper
Natural Disasters, Climate Change, and Sovereign Risk

I investigate how natural disaster can exacerbate fiscal vulnerabilities and trigger sovereign defaults. I extend a standard sovereign default model to include disaster risk and calibrate it to a sample of seven Caribbean countries that are frequently hit by hurricanes. I find that hurricane risk reduces government's ability to issue debt and that climate change may further restrict market access. Next, I show that "disaster clauses", that provide debt-servicing relief, improve government ability to borrow and mitigate the adverse impact of climate change on government's borrowing conditions.
International Finance Discussion Papers , Paper 1291

Working Paper
The rising tide lifts some interest rates: climate change, natural disasters, and loan pricing

We investigate how corporate loan costs are affected by climate change-related natural disasters. We construct granular measures of borrowers’ exposure to natural disasters and then disentangle the direct effects of disasters from the effects of lenders updating their beliefs about the impact of future disasters. Following a climate change-related disaster, spreads on loans of at-risk, yet unaffected borrowers, spike and are amplified when attention to climate change is high. Weaker borrowers with the most extreme exposure to these disasters suffer the highest increase in spreads. ...
International Finance Discussion Papers , Paper 1345

Working Paper
Robust Dynamic Optimal Taxation and Environmental Externalities

We study a dynamic stochastic general equilibrium model in which agents are concerned about model uncertainty regarding climate change. An externality from greenhouse gas emissions damages the economy's capital stock. We assume that the mapping from climate change to damages is subject to uncertainty, and we use robust control theory techniques to study efficiency and optimal policy. We obtain a sharp analytical solution for the implied environmental externality and characterize dynamic optimal taxation. A small increase in the concern about model uncertainty can cause a significant drop in ...
Finance and Economics Discussion Series , Paper 2014-75

Working Paper
Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis

We study the long-term impact of climate change on economic activity across countries, using a stochastic growth model where labor productivity is affected by country-specific climate variables?defined as deviations of temperature and precipitation from their historical norms. Using a panel data set of 174 countries over the years 1960 to 2014, we find that per-capita real output growth is adversely affected by persistent changes in the temperature above or below its historical norm, but we do not obtain any statistically significant effects for changes in precipitation. Our counterfactual ...
Globalization Institute Working Papers , Paper 365

Working Paper
Adaptation and the Cost of Rising Temperature for the U.S. Economy

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
Sellin’ in the Rain: Adaptation to Weather and Climate in the Retail Sector

Using novel methodology and proprietary daily store-level sporting goods and apparel brand data, I find that, consistent with long-run adaptation to climate, sales sensitivity to weather declines with historical norms and variability of weather. Short-run adaptation to weather shocks is dominated by changes in what people buy and how they buy it, with little intertemporal substitution. Over four weeks, a one-standard deviation one-day weather shock shifts sales by about 10 percent. While switching between indoor and outdoor stores offsets a small portion of contemporaneous responses to ...
Finance and Economics Discussion Series , Paper 2019-067

Working Paper
Natural Disasters, Climate Change, and Sovereign Risk

I investigate how natural disasters can exacerbate fiscal vulnerabilities and trigger sovereign defaults. I extend a standard sovereign default model to include disaster risk and calibrate it to a sample of seven Caribbean countries that are frequently hit by hurricanes. I find that disaster risk reduces government's ability to issue debt and that climate change further restricts government's access to financial markets. Next, I show that "disaster clauses", that provide debt-servicing relief, allow governments to borrow more and preserve government's access to financial markets, amid rising ...
International Finance Discussion Papers , Paper 1291r1

Working Paper
Growth at Risk From Climate Change

How will climate change affect risks to economic activity? Research on climate impacts has tended to focus on effects on the average level of economic growth. I examine whether climate change may make severe contractions in economic activity more likely using quantile regressions linking growth to temperature. The effects of temperature on downside risks to economic growth are large and robust across specifications. These results suggest the growth at risk from climate change is large—climate change may make economic contractions more likely and severe and thereby significantly ...
Finance and Economics Discussion Series , Paper 2021-054

Working Paper
Climate-related Financial Stability Risks for the United States: Methods and Applications

This report has two objectives: 1. Review the available literature on Climate-Related Financial Stability Risks (CRFSRs) as it pertains to the United States. Specifically, the literature review considers several modeling approaches and aims to 1.1 Identify financial market vulnerabilities (e.g., bank leverage), 1.2 Provide an assessment of those vulnerabilities (high/medium/low) as identified by the current literature, and 1.3 Evaluate the uncertainty surrounding these assessments based on interpretation of the findings and coverage of existing literature (high/low). 2. Identify methodologies ...
Finance and Economics Discussion Series , Paper 2022-043

Working Paper
Climate Change and Financial Policy: A Literature Review

This article reviews the rapidly proliferating economic literature on climate change and financial policy. We find: (1) enduring challenges in estimating the statistical properties of a changed climate; (2) emerging evidence of financial markets pricing in climate-related risks; and (3) a range of significant institutional distortions preventing such pricing from being complete. Finally, we argue that geographic regions may be an especially fruitful unit of analysis for understanding the financial impact of climate change.
Finance and Economics Discussion Series , Paper 2022-048

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