Global economic impacts of climate shocks, climate policy and changes in climate risk assessment

Fernando, Roshen; Liu, Weifeng; McKibbin, Warwick J.

doi:10.2139/ssrn.3817111

Cited by 17 publications

(25 citation statements)

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“…Based on a combined asset pricing in an endogenous growth model, Hambel et al (2020) find that the risk‐free interest rate decreases due to additional precautionary savings needed to cope with global warming. Fernando et al (2021) associate climate shocks with higher equity risk premia, which according to their simulations could lead to a loss in economic activity each year of up to 2% of GDP in the worst‐case scenario. Bolton & Kacperczyk (2020) find that investors in US stock markets also charge a premium for the risk of holding the stocks of disproportionately high carbon emitters.…”

Section: Literature Review Of Main Channelsmentioning

confidence: 99%

The effects of climate change on the natural rate of interest: A critical survey

Mongelli,

Pointner,

van den End

2023

WIREs Climate Change

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This survey reviews the literature about the possible impacts of climate change on the natural rate of interest (r*), an important yardstick for monetary policy. Prima facie, economic, and financial developments can lower r* in scenarios with increasing climate‐related damages and uncertainty that reduce productivity growth and raise precautionary savings. Orderly climate policies have a pivotal role in facilitating the transition to a carbon‐neutral economy and supporting a steady investment flow. We discuss the main models used to simulate the effects of climate change on r* and summarize the outcomes. However, in scenarios that assume innovations and investments induced by transition policies, r* could be affected positively. Overall, the downward effects of climate change on r* can be substantial, even considering the high degree of uncertainty about the outcomes, with tipping points and nonlinear effects aggravating the economic impacts. The downward pressure on r* will further challenge monetary policy in the long run, by limiting its policy space.This article is categorized under: Climate Economics > Economics and Climate Change Assessing Impacts of Climate Change > Evaluating Future Impacts of Climate Change

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Section: Literature Review Of Main Channelsmentioning

confidence: 99%

The effects of climate change on the natural rate of interest: A critical survey

Mongelli,

Pointner,

van den End

2023

WIREs Climate Change

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“…Extending this analysis to a corporate level, the authors show that exposure and vulnerability to climate change is strongly associated with a higher cost of capital (cost of borrowing) and lower levels of productivity and return on investment. Fernando, Liu, and McKibbin (2021) examined sensitivity of stock indices to the global macroeconomic consequences of chronic climate change and extreme climate shocks as well as the economic effects of transition risk of exposure to climate policies. The authors confirmed the results of other studies regarding the economic costs of climate change and the transition risk of climate policy.…”

Section: Valuation: the Curse Of Terminal Valuementioning

confidence: 99%

Climate alpha and the global capital market

Golub

Anda²,

Markandya

et al. 2022

SSRN Journal

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“…The latter stream of literature tends to consider the entire economy as a whole, ignoring sectoral heterogeneity in their estimates and lacking firm-level effects. The closer papers for this paper, accounting for sectoral changes, are Fernando (2023) and Fernando et al (2021). They also adopt the G-Cubed to estimate the global economic consequences of climate shocks.…”

mentioning

confidence: 99%

“…They also adopt the G-Cubed to estimate the global economic consequences of climate shocks. Fernando et al (2021) investigate the economic impacts due to both physical and transition risks 10 on different sectors 11 in different economies. We extend their framework by estimating the sectoral productivity impacts of physical risks using firm-level data.…”

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confidence: 99%

Global Economic Impacts of Physical Climate Risks

Lepore

2023

IMF Working Papers

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participants of the QUANTM Seminar organized by the Monetary and Capital Markets Department of the IMF, the 16th Financial Risks International Forum organized by the Institut Louis Bachelier, the Arndt-Corden Department of Economics Seminar organized by the Crawford School of Public Policy, and the reviewers from the IMF departments for their generous comments. We appreciate the support from Javier Urunuela-Lopez to process the flood data and the Research Department of the IMF for providing the formatted financial data. The remaining errors are solely the responsibility of the authors.

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Global economic impacts of climate shocks, climate policy and changes in climate risk assessment

Cited by 17 publications

References 0 publications

The effects of climate change on the natural rate of interest: A critical survey

The effects of climate change on the natural rate of interest: A critical survey

Climate alpha and the global capital market

Global Economic Impacts of Physical Climate Risks

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