IMF Working Papers

Stress Testing the Global Economy to Climate Change-Related Shocks in Large and Interconnected Economies

By Camilo E Tovar Mora, Yiqun Wu, Tianxiao Zheng

September 16, 2022

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Format: Chicago

Camilo E Tovar Mora, Yiqun Wu, and Tianxiao Zheng. "Stress Testing the Global Economy to Climate Change-Related Shocks in Large and Interconnected Economies", IMF Working Papers 2022, 189 (2022), accessed December 22, 2024, https://doi.org/10.5089/9798400219641.001

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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

We stress test the global economy to extreme climate change-related shocks on large and interconnected economies. Our analysis (i) identifies large and interconnected economies vulnerable to climate change-related shocks; (ii) estimates these economies’ external financing needs-at-risk due to these shocks, and (iii) quantifies the spillovers to the global economy using a global network model. We show that large and interconnected economies vulnerable to climate change could trigger a drain of $1.8 trillion in international reserves (2 percent of 2019’s global GDP). Domestic and multilateral macroeconomic policies can help reduce these global lossess to about $0.8 trillion. The scenario highlights the importance of considering global spillovers when assessing the impact of climate change-related shocks.

Subject: Climate change, Climate policy, Environment, Financial sector policy and analysis, Natural disasters, Stress testing

Keywords: CDS spread, Climate change, Climate change risk, Climate change vulnerability, Climate policy, Climate vulnerability, External financing-needs-at-risk, Global, Multilayered networks, Natural disasters, Stress testing, Vulnerability to climate change

Publication Details

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