A new framework for assessing climate change risk in financial markets

Nahiomy Alvarez, Alessandro Cocco and Ketan B. Patel
Additional contact information
Nahiomy Alvarez: https://www.chicagofed.org/people/a/alvarez-nahiomy
Alessandro Cocco: https://www.chicagofed.org/people/c/cocco-alessandro
Ketan B. Patel: https://www.chicagofed.org/people/p/patel-ketan

Chicago Fed Letter, 2020, issue 448, 8

Abstract: While there is growing recognition that climate change poses a new risk for the economy, more research is needed to understand how climate change risk affects global financial markets. We establish a new framework for this research by merging the climate change risk categories of physical risk, transition risk, and liability risk with the risk categories commonly assessed in the financial markets: market risk, credit risk, liquidity risk, and operational risk. We then factor in market structure and market regulation as we seek to assess the overall impact of these variables on systemic risk. Our framework shows that climate change affects each of the risk-management categories commonly assessed in the financial markets as well as the ways that they interact to generate broader systemic risk.

Keywords: Financial markets and the macro economy; international financial markets; Renewable Resources and Conservation; Climate; Natural Disasters and Their Management; Global Warming (search for similar items in EconPapers)
JEL-codes: E44 G15 Q20 Q54 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.chicagofed.org/~/media/publications/ch ... /2020/cfl448-pdf.pdf full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedhle:92324

Ordering information: This journal article can be ordered from

Access Statistics for this article

More articles in Chicago Fed Letter from Federal Reserve Bank of Chicago Contact information at EDIRC.
Bibliographic data for series maintained by Lauren Wiese ().