During the next week, I will present my paper on the Impact of Climate Risk on Fiscal Space during the Second edition of the International Conference on the Climate-Macro-Finance Interface: “New Environmental Challenges for Fiscal, Monetary, and Macroprudential Policy”.
In this joint work with John Beirne, Donghyun Park and Gazi Salah Uddin, we show that:
A unit-increase in vulnerability causes an increase in bond yields between 0.5 and 1 percent and a maximum decrease of 1 for the sovereign ratings (S&P: 21 AAA, 20 AA+, …, 5 CCC+,…) at the horizon of 1 and 2 years.
We provide further results about endogeneity:
Key results:
– Political stability reduces the fiscal impact of climate vulnerability risks
– Financial development also limits the climate risk premium
– The most vulnerable economies face the largest climate-related fiscal risks
– Religious tensions are the most impactful form of political instability