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

Camilo Tovar (), Yiqun Wu and Tianxiao Zheng

No 2022/189, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Climate change; external financing-needs-at-risk; multilayered networks; climate change vulnerability; vulnerability to climate change; climate vulnerability; climate change risk; CDS spread; Natural disasters; Stress testing; Climate policy; Global (search for similar items in EconPapers)
Pages: 33
Date: 2022-09-16
New Economics Papers: this item is included in nep-agr, nep-env and nep-net
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