Climate Change and Financial Policy: A Literature Review

Abstract

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.

A Framework for Integrating Extreme Weather Risk, Probability of Default, and Loss Given Default for Residential Mortgage Loans

“…However, there is no consensus on how to measure or quantify this risk. This limits the effectiveness of quantitative models of climate risk [6].…”

“…This underscores the importance of factoring in climate risk when pricing residential mortgage loans. Insurance companies tend to be more responsive to climate risk in pricing insurance premiums than lenders are in pricing residential mortgage interest rates [6].…”

When climate meets real estate: A survey of the literature

“…Most related to our work is Schuetz (2023), although their focus is on household decision making in general rather than housing and mortgage markets specifically. Readers interested in modeling, asset classes other than housing, and general research themes may find Brunetti et al (2022), Dennis (2022), , and Hong et al (2020) of interest. markets.…”