Climate Disaster Risks – Empirics and a Multi-Phase Dynamic Model

By Stefan Mittnik, Willi Semmler, Alexander Haider

July 11, 2019

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Stefan Mittnik, Willi Semmler, and Alexander Haider. Climate Disaster Risks – Empirics and a Multi-Phase Dynamic Model, (USA: International Monetary Fund, 2019) accessed November 24, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Recent research in financial economics has shown that rare large disasters have the potential to disrupt financial sectors via the destruction of capital stocks and jumps in risk premia. These disruptions often entail negative feedback e?ects on the macroecon-omy. Research on disaster risks has also actively been pursued in the macroeconomic models of climate change. Our paper uses insights from the former work to study disaster risks in the macroeconomics of climate change and to spell out policy needs. Empirically the link between carbon dioxide emission and the frequency of climate re-lated disaster is investigated using cross-sectional and panel data. The modeling part then uses a multi-phase dynamic macro model to explore this causal nexus and the e?ects of rare large disasters resulting in capital losses and rising risk premia. Our proposed multi-phase dynamic model, incorporating climate-related disaster shocks and their aftermath as one phase, is suitable for studying mitigation and adaptation policies.

Subject: Bonds, Climate change, Climate policy, Environment, Financial institutions, Greenhouse gas emissions, Natural disasters, Stocks

Keywords: Bond financing, Bond issuing, Bonds, Capital stock, Central Asia, Climate bond, Climate change, Climate economics, Climate finance policy, Climate policy, Credit policy, Disaster risk, East Asia, Environmental economics, Greenhouse gas emissions, Low income, Macro feedbacks, Middle East, Monetary and financial policies, Monetary policy, Multi-phase macro model, Natural disasters, North Africa, Risk pooling, Sub-Saharan Africa, WP

Publication Details

Pages:

47
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/145
Stock No:

WPIEA2019145
ISBN:

9781498320849
ISSN:

1018-5941

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